The spread generated by a trading platform must be reviewed to give you an idea of how the value of a stock might change. There are several things to consider when considering the spread:
- Review the value of the stock. A more expensive stock will clearly have a larger spread as that stock is likely to move up and down a lot. Some smaller stocks could have spreads as small as a few pennies.
- Look at the volume associated with the spread. A stock with a higher volume will have a larger spread. This is due to the potential for the stock to dramatically change in value as the day progresses.
- Analyze any concerns about the stock. A stock that has experienced more drops will probably have a lower bid. This is all about the pessimism that people might have over that stock or at least uncertainty surrounding it.
