Bid-Ask Spread
Definition
The bid-ask spread is the difference between the best bid, the highest price someone will pay, and the best ask, the lowest price someone will accept. The CFTC defines it simply as 'the difference between the bid price and the ask or offer price.' A buyer pays the ask and a seller receives the bid, so the spread is a cost of trading on top of fees.
Why it matters
The spread is paid on every trade and twice on a round trip, so it can exceed the fee and erase a small edge. Investors should check the live spread before trading, use the ask or bid rather than the midpoint in any calculation, and expect wider spreads in new, niche or illiquid markets.
Common misconceptions
- •The displayed price is often the midpoint, which no one can trade at.
- •Average spreads overstate typical costs when a few placeholder quotes are very wide; medians are a better guide.
- •A tight spread at the top of the book says nothing about size; depth matters for larger orders.
- •The label is only a starting point. Investor outcomes usually depend on the governing documents, cash-flow priority, valuation policy, disclosure quality, and manager discretion surrounding the term, not just the shorthand definition used in marketing materials.
Technical details
Round-trip cost (illustrative, Kalshi standard fees)
Buy 100 at the 62-cent ask: $62.00 plus a $1.65 fee.
Sell 100 at the 58-cent bid: $58.00 less a $1.71 fee.
Loss $7.36 with no change in the market: $4.00 spread and $3.36 fees.
Kalshi spreads by price band (AltStreet study, 1,873 liquid contracts)
1 to 9 cents: median 1.0 cent, mean 4.0 cents.
10 to 34 cents: median 3.0 cents, mean 12.4 cents.
35 to 64 cents: median 2.0 cents, mean 11.8 cents.
65 to 89 cents: median 2.5 cents, mean 11.6 cents.
90 to 99 cents: median 1.0 cent, mean 2.8 cents.
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- Why can buying and immediately selling a contract lose money?
- Because you buy at the ask and sell at the bid. With a bid of 58 cents and an ask of 62 cents, buying 100 contracts and selling them straight back loses $4.00 to the spread, plus $1.65 and $1.71 in Kalshi standard fees, for a $7.36 loss on a position that never moved.
- How wide are spreads in practice?
- AltStreet's Kalshi study measured median quoted spreads of 1.0 cent for deep longshots (1 to 9 cents), 3.0 cents at 10 to 34 cents, 2.0 cents for tossups (35 to 64 cents), 2.5 cents at 65 to 89 cents and 1.0 cent for heavy favorites, across 1,873 liquid contracts. Between 74% and 96% of contracts in each band were quotable inside 10 cents. Mean spreads were much wider because newly listed contracts carry uncontested placeholder quotes.
- Do spreads differ by market type?
- Greatly. In the same study, baseball game-winner, daily temperature and film-review series had median spreads of 1.0 cent with almost every contract quotable inside 10 cents, while a Japanese baseball series had a 3.5-cent median and an 18.8-cent mean. Headline markets are not a guide to niche ones.