In finance, the spread is the difference between two interest rates, prices, or yields. It represents the margin or gap that can indicate profit, risk, or cost in a transaction.
Examples of Spreads
- Lending spread: The difference between the rate a bank charges borrowers and the rate it pays depositors.
- Bid-ask spread: The gap between the price buyers are willing to pay for a security and the price sellers are asking.
- Yield spread: The difference between yields on two different debt instruments, often used to compare risk levels.
Why It Matters
Spreads help investors and borrowers evaluate costs, risks, and profitability. A wider spread often indicates higher risk or profit margins, while a narrow spread suggests lower risk or more competition.
Final Thoughts
The spread is a fundamental concept across financial markets. Understanding different types of spreads helps in comparing investments, loans, and market conditions more effectively.