Education

The Bid-Ask Spread Is Part of the Cost in an Illiquid Stock

By Walid Mograbi · 2026-04-19 · 2 min read

When liquidity is thin, the visible commission may be small while the spread becomes the more meaningful cost of getting into or out of the position.

Why this lesson matters

A quiet stock can look cheap to trade because the commission is low. But if the spread is wide and the available size is small, execution can become meaningfully more expensive than expected.

The core idea

Spread is the gap between the best bid and best ask.
Wider spread usually means higher implicit trading cost.
Last traded price is not enough for planning an order.
Order size and liquidity change the actual fill outcome.

Practical example

A stock shows a recent last trade at 20.00, but the current bid is 19.80 and the ask is 20.20. An investor using a market order to buy may pay closer to the ask, and a larger order may climb beyond it if there is not enough liquidity sitting there.

Common mistakes to avoid

Looking only at the last trade price.
Ignoring available size at the bid and ask.
Assuming commission-free trading means friction-free execution.

Quick checklist

Check the bid, ask, and size before placing the order.
Be more careful in quieter names or thinner ETFs.
Think about whether a limit order may better fit the situation.
Include spread as part of the total transaction cost.

Key takeaway

The spread is not a side detail. In less liquid names, it can be one of the main costs of trading and should be treated that way before you press the button.