Bid-Ask Spread in Indian Stock Trading: A Beginner’s Guide to Market Mechanics

When you buy or sell a stock in India, you might not see it, but there’s a hidden cost built into every trade. It’s called the bid-ask spread. This tiny number can eat into your profits-or save you from losses-if you understand how it works. For beginners in Indian stock trading, ignoring the bid-ask spread is like driving a car without checking the fuel gauge. You might get somewhere, but you won’t know when you’re running on empty.

What Exactly Is the Bid-Ask Spread?

The bid-ask spread is the difference between the highest price someone is willing to pay for a stock (the bid) and the lowest price someone is willing to sell it for (the ask). If you see a stock listed at ₹100.50 bid and ₹100.75 ask, the spread is ₹0.25. That means if you buy right now, you pay ₹100.75. If you sell right away, you get ₹100.50. You’ve lost ₹0.25 before the stock even moved.

This isn’t a fee charged by your broker. It’s built into the market itself. Market makers and liquidity providers earn this tiny gap as compensation for keeping the market running smoothly. In India, where retail traders make up over 90% of daily volume, understanding this spread is the first step to trading smarter.

Why Does the Spread Matter in Indian Markets?

In the U.S. or Europe, big-cap stocks like Apple or Tesla often have spreads of just a few paise. But in India, especially with smaller or less liquid stocks, the spread can be much wider. For example, a mid-cap stock like a regional cement company might trade with a ₹2 or ₹3 spread-even when the stock price is ₹200. That’s 1-1.5% of your investment lost instantly.

Why? Because fewer people trade these stocks. Less demand means fewer buyers. Fewer buyers mean sellers have to drop their price more to find a match. That’s what widens the spread. If you’re buying 1,000 shares of a stock with a ₹3 spread, you’re paying ₹3,000 extra just to enter the trade. That’s not a small amount.

Think of it like buying mangoes at a local market. If everyone wants the same variety, the price is fair and stable. But if only two vendors sell that mango, one might charge ₹80 and the other ₹85. You pay ₹85. If you turn around and try to sell, you might only get ₹80. That ₹5 difference? That’s the spread.

How to Spot the Spread in Real Time

On platforms like Zerodha Kite, Upstox, or Groww, you’ll see two numbers right next to the stock price: one green (bid), one red (ask). The bid is always lower. The ask is always higher. The gap between them is your spread.

For beginners, here’s what to look for:

• Large-cap stocks (Reliance, HDFC Bank, TCS): spreads are usually under ₹0.20
• Mid-cap stocks (like Page Industries or Astral): spreads can be ₹0.50 to ₹2.00
• Small-cap or illiquid stocks (many penny stocks): spreads can jump to ₹5, ₹10, or even more

Always check the depth chart (order book) before placing a trade. If the bid volume is 100 shares and the ask volume is 5,000 shares, you’re likely to get filled quickly on the ask-but only if you’re okay paying the higher price. If the spread is wide and volume is thin, you might get stuck with a bad fill.

How the Spread Affects Your Profits

Let’s say you buy 500 shares of a stock at ₹150.25 and sell it the next day at ₹151.00. You think you made ₹0.75 per share profit. But here’s the catch: when you bought, you paid ₹150.25 because that was the ask price. When you sold, you got ₹150.50 because that was the bid price. Your real profit? ₹0.25 per share. You lost ₹0.50 to the spread alone.

In scalping or day trading, where you make dozens of trades a day, the spread adds up fast. A trader making 20 trades with a ₹0.50 spread loses ₹10 per round trip. That’s ₹200 in just one day-before commissions, taxes, or price movement. Many beginners think they’re winning because the stock moved up, but they’re actually losing to the spread.

Even in swing trading, if you hold for a week, the spread doesn’t vanish. It’s still there when you enter and exit. Over time, wide spreads can turn a profitable strategy into a losing one.

What Causes Wide Spreads in Indian Stocks?

Not all stocks are created equal. Here’s what makes spreads wider in India:

• Low trading volume: If only 500 shares trade a day, there’s little competition between buyers and sellers.
• Penny stocks: Many are manipulated or illiquid. Brokers often warn against them for this exact reason.
• After-hours trading: Outside 9:15 AM to 3:30 PM, spreads blow out. Don’t assume you can trade anytime.
• News events: Earnings, policy changes, or sector bans can cause spreads to spike overnight.
• Market volatility: During crashes or rallies, liquidity dries up. Spreads widen because no one wants to be the first to quote a price.

For example, during the 2022 commodity price surge, many metal and mining stocks in India saw their spreads jump from ₹0.30 to ₹8 within hours. Traders who didn’t check the order book got trapped.

How to Trade Smarter with the Spread in Mind

You can’t eliminate the spread-but you can reduce its impact:

1. Stick to liquid stocks: Focus on Nifty 50, Sensex, or top 100 stocks by average daily volume. These have tight spreads and reliable pricing.
2. Use limit orders: Never use market orders unless you’re certain the spread is narrow. A limit order lets you say, “I’ll buy at ₹149.50 or lower.” You might wait a few seconds, but you avoid paying the full ask.
3. Avoid illiquid stocks: If a stock trades less than 10,000 shares a day, treat it like a minefield. Even if it looks cheap, the spread could cost you more than the stock’s gain.
4. Check the spread before every trade: Make it a habit. Just like you check the weather before leaving home.
5. Trade during peak hours: 9:45 AM to 11:30 AM and 1:30 PM to 3:15 PM are when volume is highest and spreads are tightest.

One trader I know started by buying small-cap pharma stocks because they were under ₹50. He lost 18% of his capital in three months-not because the stocks went down, but because every trade cost him 3-5% in spread. He switched to Nifty 50 stocks, and his win rate doubled.

Spreads vs. Brokerage Fees: Which Is Worse?

Most beginners worry about brokerage fees. Zerodha charges ₹20 per trade. But if you’re trading a stock with a ₹5 spread on a ₹100 stock, that’s 5% of your investment lost before the trade even starts. ₹20 is nothing compared to that.

Think of it this way: brokerage is a fixed cost. The spread is a variable cost that changes based on the stock you pick. You can control the spread by choosing the right stocks. You can’t control brokerage unless you switch brokers.

Many brokers now offer zero brokerage on equity delivery trades. That’s great-but it doesn’t fix the spread. You still pay the market’s hidden tax.

What Happens When the Spread Disappears?

It rarely does. Even in the most liquid markets, there’s always a spread. But in India, SEBI has pushed for better liquidity through measures like circuit filters, margin reforms, and increased market-maker participation. As a result, spreads on major stocks have narrowed by 30-40% since 2020.

For example, Infosys’s average spread was ₹0.80 in 2020. By 2025, it dropped to ₹0.30. That’s a big win for retail traders. But the same hasn’t happened for most small-caps. The gap between big and small is growing.

Final Tip: Always Ask Yourself This Before Trading

Before you hit buy or sell, ask: “If I bought this right now and sold it in 10 seconds, would I make money?” If the answer is no, the spread is too wide. Walk away.

The bid-ask spread isn’t a trick. It’s a signal. It tells you how much confidence the market has in a stock’s price. Wide spread? Low confidence. Narrow spread? High confidence. Your job isn’t to fight the spread-it’s to trade where it’s smallest.

Start with the top 50 stocks. Learn their patterns. Watch their spreads. Over time, you’ll develop an instinct for when to trade-and when to wait. That’s how you turn basic knowledge into real trading skill.