SIE practice questionhardBid-Ask Spread
A market maker quotes a stock at $25.00 bid / $25.15 ask. If a customer sells 100 shares at the market, the customer will receive which price, and what does the spread represent?
- A$25.00 per share; the spread represents the market maker's compensation✓ Correct answer
- B$25.00 per share; the spread represents the SEC regulatory fee
- C$25.15 per share; the spread is the exchange fee
- D$25.075 per share (the midpoint); the spread is split between buyer and seller
Explanation
Why A — $25.00 per share; the spread represents the market maker's compensation
The bid price ($25.00) is what the market maker is willing to pay — this is the price a selling customer receives. The ask price ($25.15) is what the market maker charges to sell — this is the price a buying customer pays. The difference ($0.15) is the bid-ask spread, which represents the market maker's compensation for providing liquidity and taking on the risk of holding inventory. The spread is NOT an exchange fee or SEC fee.
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