Evercore Sales & Trading Interview Practice Test

The bid-ask spread is a crucial concept in trading that reflects the difference between the highest price a buyer is willing to pay for a security (the bid) and the lowest price a seller is willing to accept (the ask). This spread indicates market liquidity; a narrower spread often signifies a more liquid market with numerous buyers and sellers, while a wider spread can indicate less liquidity or increased volatility.

By understanding the bid-ask spread, traders can assess transaction costs and make informed decisions regarding entry and exit points in various markets. The other concepts listed do not capture the nuances of market dynamics that the bid-ask spread represents. For instance, the average price of a security does not address the range of negotiated prices, while the total number of buyers and sellers does not necessarily reflect their willingness to transact at specific price points, and the price listed by exchanges primarily indicates specific market conditions rather than the negotiation process captured in the spread.