Wide Spreads
Wide spreads mean a large gap between bid and ask. They usually indicate low liquidity and lead to higher trading costs.
Definition
Wide spreads describe the situation where the bid ask spread is large relative to the typical price moves and potential edge.
Why it happens
• Low liquidity and limited depth.
• Higher uncertainty, especially around major news or close to resolution.
• Fewer market makers willing to quote tightly.
Why it matters
Wide spreads increase baseline costs. Even if you have a view on implied probability or mispricing, the spread can eliminate profitability after costs.
Common pitfalls
Chasing tiny edges: In wide spread markets, small perceived mispricings are often not tradable.
Using market orders: In wide spreads, market orders can be especially expensive.