Stock Liquidity - Bid-Ask Spread (BAS)
Let’s consider the Bid-Ask Spread (BAS) as the de facto measure of market liquidity [1]. It is typically the difference between ask (offer/sell) price and bid (purchase/buy) price of a stock. Ask price is the value point at which the seller is ready to sell and bid price is the point at which a buyer is ready to buy. When the two value points match in a marketplace, i.e. when a buyer and a seller agree to the prices being offered by each other, a trade takes place. These prices are determined by two market forces -- demand and supply, and the gap between these two forces defines the spread between buy-sell prices. The larger the gap, the greater the spread! BAS can be expressed in absolute as well as percentage terms. When the market is highly liquid, BAS values can be very small, but when the market is illiquid or less liquid, they can be large. T o calculate the bid-ask spread percentage, simply take the bid-ask spread and divide it by the sale price . For instance, a $10...