Spread
What is the spread?
The spread is the gap between the price you pay to buy an investment and the price you’d get if you sold it immediately. It’s a cost that’s baked into the price, not shown as a separate fee.
How does it work?
Investments have two prices: a “buy” price (what you pay) and a “sell” price (what you get). The buy price is always slightly higher. That difference is the spread.
If a share has a buy price of £10.05 and a sell price of £9.95, the spread is 10p. About 1%.
Why does the spread exist?
Market makers and brokers profit from the spread. They buy at the lower price and sell at the higher price. It’s how trading works.
How big is the spread?
It depends on the investment. Popular shares and large ETFs have tiny spreads. Often less than 0.1%. Smaller or less-traded investments can have spreads of 1% or more.
OEICs don’t have a spread in the same way. They have a single price calculated once a day.
Does the spread matter?
For most long-term investors, not much. You pay it once when you buy and once when you sell. If you’re holding for years, a 0.1% spread is negligible.
It matters more if you trade frequently or buy smaller, less liquid investments.
Key points about spread
- Gap between buy and sell price. A hidden cost
- Larger ETFs have smaller spreads. More trading means tighter prices
- OEICs have single pricing. No spread
- Matters less for long-term investors