US Stocks 36
Investor.gov says the spread is the difference between the bid and ask, and its ETF bulletin says the spread can be thought of as a hidden cost because it reduces potential returns. Zero commission does not mean zero trading friction.
Why this note matters
Investors can hear `commission-free` and assume the market itself is now costless. Investor.gov points to a separate cost layer: the gap between the buy side and the sell side of the quote.
Investor.gov says the bid is the highest price a buyer will pay for a specified number of shares and the ask is the lowest price at which a seller will sell. It then says the bid price will almost always be lower than the ask price.
That means the quote already contains a built-in gap between where a seller can hit liquidity and where a buyer can take liquidity.
Investor.gov's ETF bulletin says the difference between the bid and ask is called the spread, then gives a concrete example: an investor who buys 200 ETF shares at the ask of $60 and sells them immediately at the bid of $59.50 would incur a $100 loss. The bulletin says this demonstrates the impact of the spread on an ETF investment.
The same bulletin then states that the spread can be thought of as a hidden cost to investors since spreads reduce potential returns. It also notes that more liquid, higher-volume ETFs typically have tighter spreads.
Execution quality is easy to ignore when the app front-end emphasizes zero-commission branding. Investor.gov's examples bring the missing friction back into view.
For Hynexly readers, the practical rule is simple: before treating a trade as cheap, check the bid-ask spread and not just the headline commission policy.
Investor.gov defines bid, ask, and spread in plain market-structure terms.
Open sourceInvestor.gov shows how a bid-ask spread can create an immediate trading loss and explicitly calls the spread a hidden cost to investors.
Open source