The bid-ask spread (alternately known as a bid-offer spread) is the difference between the maximum price at which someone is willing to purchase (bid) an asset or security (stock or currency) and the minimum price at which someone is willing to sell it (ask). 

It is part of a negotiation process coordinated by stock systems, brokers, and specialists that matches buyers and sellers. In some cases, bids and asks are posted via computer, as on the New York Stock Exchange and the Nasdaq.

The ask price tends to be higher, while the bid price tends to be lower. Buyers usually purchase at the ask price while sellers sell at the bid price.

For example: Company A wants to buy 100 shares of IBM stock at $34 per share. Its bid price is $34 per share. Company B wants to sell 150 shares of IBM stock at $34.50 per share. The “ask” price is $34.50 per share. Therefore, the bid-ask spread is $.50.

Market makers and dealers make their profit by selling at a higher price (ask) and buying at a lower price (bid). The difference between the prices, the bid-ask spread, is what they use as their commission. The spread, which also goes toward some fees, is proportional to their profit.

In the scenario above, Company A would purchase 100 shares of stock of IBM at the ask price for $3,450, while Company B would sell 100 shares of stock of IBM at the bid price for $3,400. The dealer would take the spread of $50 as profit.

Just like stocks, the bid-ask spread is affected by supply and demand. High demand leads to a rise in the number of bids and a large supply leads to an increase in asks or offers.