In exchange trading, a spread is the difference between the price at which an instrument can be sold immediately and the price at which it can be bought immediately. This difference is a hidden cost: by buying and immediately selling a security, an investor loses the spread amount.
Spread width is a direct indicator of liquidity. For actively traded instruments, it comprises fractions of a percent; for rarely traded instruments, it can reach several percent, and during certain periods, orders from one side may be absent entirely.
The term is used in other meanings as well. Credit spread is the difference between the yield of corporate and government securities, reflecting a risk premium. Currency spread is the difference between buy and sell rates at a bank. Common to all meanings is that spread describes the difference that makes up an intermediary's income or the premium for risk taken.
Practical conclusion: when calculating expected return, spread should be accounted for alongside commissions, especially for short investment horizons and instruments with low liquidity.