What is bid/ask spread and how it affects you as an investor?

What is bid/ask spread?

The bid/ask spread is the difference between the price quoted by bullion dealers (Ask price) selling certain Precious Metals and the price that investors are willing to pay for the Precious Metals (Bid price).

For example, for Gold, if the bid price is US$1788 and the ask price is US$1790, the spread will be US$2.

 

What are determining factors for the spread size?

1. Trading volume: The higher the liquidity of the Precious Metals, the higher the trading volume. Precious Metals that are highly liquid will have narrower spreads as many dealers or investors are looking to buy(ask) or sell(bid) with the best price. Precious Metals such as Rhodium have a wider spread as they are less liquid and more volatile when compared to Precious Metals such as Gold or Silver.

 

2. Volatility: Prices may fluctuate when volatility in the Market is high. The bid/ask spread is usually widened for bullion dealers or market makers to manage market risks. For example, when compared to Gold and Silver, Platinum has a wider spread as it is more volatile.

 

How it affects you as an Investor?

As an investor, you would want to execute a buy or sell order closest to the Spot price. With a narrower bid/ask spread, you can get the best price with the market order itself.

 

However, a wider bid/ask spread will impose an indirect cost in trading, especially for huge orders. A wider spread will equate to a higher premium for investors. To minimize trading risks, placing a limit order will therefore be a better option. GSC Live! allows you to place a limit order at your desired price with narrower spreads at anytime, anywhere!

Read more about GSC Live!

 

If you have any questions, feel free to contact us at enquiry@goldsilvercentral.com.sg or +65 6222 9703.

 

Evon