The Bid-Ask Spread and Slippage

When you open a stock or crypto screen, there isn't just one price—there's a price the buyers are quoting and a price the sellers are quoting, separately.

The "highest price" the buyers quote is called the bid, and the "lowest price" the sellers quote is called the ask.

But these two are usually not stuck right together; they are slightly apart. This gap is exactly the bid-ask spread.

Spread = ask − bid

To buy right now at market price, you have to buy at the "lowest price of the sellers (the ask)," and to sell right now, you have to sell at the "highest price of the buyers (the bid)."

So if you resell right after buying, you sell at a lower price than you bought. That difference is the "entrance fee" you quietly paid.

Slippage refers to the difference between "the price I expected" and "the price actually executed."

Between the moment you press the order button and the moment the trade actually happens, a very short but real amount of time passes, and if the price moves in that interval or the quantity you wanted isn't fully filled, it executes at a different price than expected.

For example, if you tried to buy 100 shares at 1,000 won at market price, but there are only 30 shares available at 1,000 won, the remaining 70 shares get filled at the higher quotes above—1,001 won, 1,002 won, and so on. In the end, the average execution price ends up higher than expected.

Slippage isn't always a bad thing. If you're lucky and it executes at a better price, it becomes favorable (positive) slippage. However, when the market moves suddenly, it tends to widen in the unfavorable direction.

If the spread is an "expected cost you can know before trading," think of slippage as a "hard-to-predict cost that pops up when you actually place the order."

Why do some stocks have almost no spread while others gap widely? The key is "liquidity"—how many people are actively buying and selling.

Mega-cap stocks that are traded very actively have very narrow spreads. According to one survey, the spread of mega-caps like Apple and Microsoft was roughly at the 0.01% (1 bp) level, and even trading the entire S&P 500 was as thin as roughly 0.05% (about 4–5 bp).

Conversely, small-caps or unpopular assets that trade thinly can gap widely, sometimes to more than 5% (500 bp). With few buyers and sellers, neither side yields on price, so the gap widens.

So even running the same 1 million won, the hidden cost can be worlds apart depending on "what" you trade. The more you buy and sell frequently, as in day trading, the more this cost piles up like a snowball, eating into the return you actually pocket.

The basic tool for handling this cost is the order type.

A market order means "execute right now, price doesn't matter," so it's fast but takes on the spread and slippage as is. A limit order means "I won't buy unless it's this price," so you don't get dragged to an unwanted price, but it may not execute.

In normal times, this difference seems trivial, but on a day the market collapses, the story is completely different.

A representative case is the U.S. "flash crash" of May 6, 2010. The Dow plunged nearly 1,000 points in about 10 minutes, and as liquidity evaporated in an instant, perfectly sound large-caps like P&G and Accenture briefly executed at absurd prices like 1 cent or 100,000 dollars.

At that moment, people who pressed a market order saying "just sell now, any price is fine" experienced slippage beyond imagination.

The lesson is clear. The spread and slippage are small costs in normal times, but the instant liquidity disappears, they can turn into a frightening size. This is also why long-term investors should not panic-throw market orders in a crash.

Fortunately, long-term investors who buy steadily over a long time and hold for a long time are the group least affected by the spread and slippage. Since the number of trades itself is small, the total of this "entrance fee" paid each time is also small.

Conversely, frequent trading—buying and selling several times a day—piles up costs from the spread and slippage before any profit is even made. Even with a good win rate, if you can't clear this cost, it can end up negative.

So these habits help. Choose assets with abundant liquidity, use limit orders instead of market orders when the market is turbulent, and above all, "not switching often" is itself the most powerful cost saving.

《Returns of Almost Everything》 is a site we operate directly to show even these hard-to-see costs without hiding them. If you directly compare how the result differs between putting in a lump sum at once and splitting it up, you'll get a sense of why frequent trading tends to lead to losses.