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What is Bid Offer Spread?
The difference between the bid price (at which the holder can sell shares) and the offer price (at which the holder can buy shares). On occasion this can be quite large and depends on the equity's underlying price, liquidity, volatility and a number of other factors.
Example, if a Stock Exchange quotes Shares A last trading price at $1.00, its bid price is say $1.00 and offer price is say $1.01. Therefore we say there is bid offer spread of 1 cent.
Many financial instruments would offer a bid offer spread. Instruments such as currency exchanges, bonds, commodities all have bid offer spreads.
Even unit trusts also have a bid offer spread and effectively this amounts to an extra exit charge when the investor sell out of their investments.
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