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Spread
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| - | The word spread has several different meanings: 1) The difference in a price [[Quotation|quotation]] between the [[Bid|bid]], the price at which a [[Dealer|dealer]] is prepared to buy, and the ask, the price at which a dealer will sell. A large spread usually means the market lacks [[Liquidity|liquidity]]. When a market lacks liquidity dealers often cannot buy and sell quickly and so they widen the spread to avoid being caught on the wrong side of the market. 2) Spread can also be used to express the difference in yields between two [[Fixed Income|fixed income]] securities of the same quality but different maturities, or of different quality but the same maturities. 3) It can also refer to the difference in [[Yield|yield]] between a [[Bond|bond]] and a reference government bond, which is regarded as relatively [[Risk|risk]]-free. 4) A [[Futures|futures]] spread is the difference in prices between delivery months in the same or different markets. 5) Spread can also refer to the difference between borrowing and lending rates by which a financial intermediary makes profits. | + | The word spread has several different meanings: 1) The difference in a price [[Quotation|quotation]] between the [[Bid|bid]], the price at which a [[Dealer|dealer]] is prepared to buy, and the [[Ask|ask]], the price at which a dealer will sell. A large spread usually means the market lacks [[Liquidity|liquidity]]. When a market lacks liquidity dealers often cannot buy and sell quickly and so they widen the spread to avoid being caught on the wrong side of the market. 2) Spread can also be used to express the difference in yields between two [[Fixed Income|fixed income]] securities of the same quality but different maturities, or of different quality but the same maturities. 3) It can also refer to the difference in [[Yield|yield]] between a [[Bond|bond]] and a reference government bond, which is regarded as relatively [[Risk|risk]]-free. 4) A [[Futures|futures]] spread is the difference in prices between delivery months in the same or different markets. 5) Spread can also refer to the difference between borrowing and lending rates by which a financial intermediary makes profits. |
Revision as of 16:50, 1 September 2009
The word spread has several different meanings: 1) The difference in a price quotation between the bid, the price at which a dealer is prepared to buy, and the ask, the price at which a dealer will sell. A large spread usually means the market lacks liquidity. When a market lacks liquidity dealers often cannot buy and sell quickly and so they widen the spread to avoid being caught on the wrong side of the market. 2) Spread can also be used to express the difference in yields between two fixed income securities of the same quality but different maturities, or of different quality but the same maturities. 3) It can also refer to the difference in yield between a bond and a reference government bond, which is regarded as relatively risk-free. 4) A futures spread is the difference in prices between delivery months in the same or different markets. 5) Spread can also refer to the difference between borrowing and lending rates by which a financial intermediary makes profits.