What constitutes the spread in stock trading?

The spread in stock trading is defined as the gap between the buying price (or bid price) and the selling price (or ask price) of a security. This difference is crucial for traders because it represents the cost of executing a trade. A narrower spread typically indicates more liquidity in the market, meaning there are more buyers and sellers actively trading that security.

In practical terms, when a trader wants to buy a stock, they will pay the ask price, while sellers will receive the bid price. The spread effectively reflects the profit margin for market makers or liquidity providers who facilitate these transactions. Thus, understanding the spread is essential for traders as it can impact their trading costs and overall profitability.

Other options may touch on aspects of trading but do not accurately define the spread. For example, the first choice refers to types of orders rather than price gaps, while the last two relate to brokerage fees and price fluctuations, respectively, which are not directly tied to the concept of the spread in stock trading.