how spreads work5 May 2009 21:50
The spread on a particular share is deterimed by the market maker on the company's marketability. For a widely traded company say like Royal bank of Scotland, the spread would be minimal because the market maker could be sure of matching the bargain with another trader but with small companies trading in pennies, the market maker has to cover the possibility that he might be stuck with stock or be short for a while before he can find a match, so he quotes a wide spread to cover himself. It also depends on the size of the market in that stock. With no liquidity, shares can move very quickly. IPI is a classic example.