The concept of spread in the Financial Market is central to those who invest or trade financial assets, but it is not always well understood.
Simply put, spread is the difference between the purchase price (bid) and the sale price (ask) of an asset.
This difference occurs in several markets — such as shares, foreign exchange and fixed income — and reflects operating and liquidity costs.
So in this article, we will explore what spread is in the financial market, the most common types and how it directly impacts your investments.
In the financial market, the spread is basically the difference between the price a buyer is willing to pay (bid) and the price a seller accepts to sell (ask).
This difference may vary depending on the asset, trading volume and market liquidity.
In highly liquid markets, such as foreign exchange and large company stocks, the spread tends to be smaller, while in less liquid markets, such as lower volume stocks, it tends to be higher.
The spread exists because market intermediaries, such as brokers and banks, seek profit by mediating transactions between buyers and sellers.
They offer a slightly different buy price and sell price to ensure a margin.
In short, the spread works as an implicit cost for the investor.
Every time you buy an asset, you end up paying more than the market price, and when you sell it, you receive a slightly lower price.
This “invisible cost” can have a significant impact on short-term trading and in highly volatile markets.
This is the most common type and refers to the difference between the purchase and sale price of an asset.
In the stock market, for example, you will see a bid price and an ask price for each stock.
The greater the difference between these values, the greater the spread, which means a higher cost for the investor.
Let's look at an example: imagine that the share of company XYZ has a purchase price of R$ 20.00 and a sale price of R$ 20.05.
The spread is R$ 0.05, which represents an indirect cost for those carrying out the operation.
This type of spread is common in highly liquid markets, such as foreign exchange and large company stocks, where spreads tend to be smaller due to competition between buyers and sellers.
The credit spread occurs in fixed income transactions, such as loans and public or private bonds.
It represents the difference between the rate that the bank pays the investor (when offering a fixed income product) and the rate it charges borrowers.
This spread reflects credit risk — the higher the borrower's risk, the higher the spread, to offset the risk of default.
An example is the debenture market: if a company offers a bond with a rate of 10% per year, but a similar investor obtains another bond, with lower risk, with a rate of 7% per year, the difference of 3% is the credit spread.
This spread can indicate the risk perceived by the market, helping investors to evaluate the cost-benefit of the investment.
In the foreign exchange market, the exchange rate spread is the difference between the buying price and the selling price of a foreign currency.
This type of spread is widely observed when buying and selling currencies at exchange offices or when using international cards.
As there is a high demand for foreign currencies, intermediaries often apply a spread to cover costs and risks.
Example: if a currency exchange sells the dollar at R$ 5.10 and buys it at R$ 5.00, the exchange rate spread is R$ 0.10 per dollar.
This spread may vary depending on the volume traded and the purchase channel (exchange houses, banks, applications, etc.).
In recent years, several apps have helped minimize the spread by offering more competitive quotes.
The spread represents a cost embedded in every financial transaction, and this can have a greater impact than many investors realize.
In short-term operations, such as day trading, the spread can eat up a good portion of profits, as each purchase and sale involves paying this difference.
In long-term assets, the spread tends to have a smaller impact, but it is important to consider this cost in investment strategies.
Additionally, higher spreads often reflect less liquid markets, where it is more difficult to find buyers and sellers for a given asset.
This can make the asset more volatile and risky, especially in times of crisis.
Therefore, the spread can be a relevant indicator for those looking to reduce costs and manage risk efficiently.
Some apps can help investors track spreads and find better quotes for different trades.
Here are some options:
In short, these applications can facilitate the monitoring and analysis of spreads in the financial market, helping you make more informed decisions and reduce operating costs.
Therefore, understanding the spread in the Financial Market and its impact on investments is essential for any investor seeking to optimize their operations and maximize their returns.