The difference between the highest price a buyer is willing to pay for a security (bid) and the lowest price for which a seller is willing to sell (ask). Spreads are quoted in basis points (bp), where 1% equals 100 bp. The size of the spread is influenced primarily by market liquidity, or by the volume of trading for a particular security. The higher the liquidity, the narrower the gap between bid and ask prices. Spreads are indicative of transactions costs – the tighter the spread, the lower the cost of trading the security.