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) Often 'spread' refers 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.