Bid-ask spreads: the ETF cost nobody puts in the factsheet
The TER gets all the attention, but every single ETF trade also pays the bid-ask spread — the gap between the price you can buy at (ask) and sell at (bid). It never appears on a statement or a factsheet, yet for frequent buyers of smaller funds it can quietly outweigh the management fee.
What the spread is and what it costs
Market makers stand ready to buy at the bid and sell at the ask, earning the gap as compensation for inventory risk. If a fund quotes €99.95 / €100.05, the round-trip cost is 0.10% — you effectively pay half the spread (0.05%) on entry and half on exit. On a one-off €10,000 purchase that's €5; trivial. On weekly trading of a niche fund quoting 0.5% wide, it compounds into a real drag.
Two funds tracking the same index can trade at very different spreads. What drives it: the liquidity of the underlying basket (US large caps hedge cheaply; emerging-market small caps don't), whether the underlying market is open (see our trading-hours guide), fund size and on-exchange volume, competition among market makers on that listing, and the venue itself — the same ISIN often quotes tighter on Xetra than on a smaller exchange.
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How to check and minimise it
Before buying, look at the live order book in your broker app: the top bid and ask with sizes. Compute (ask − bid) ÷ midpoint. Under 0.10% is excellent for a UCITS fund; 0.10–0.30% is normal for thematic funds; above 0.50% deserves a pause — consider a larger fund tracking a similar index, a different listing of the same fund, or simply a limit order at the midpoint, which frequently fills as quotes flicker.
Remember that on-screen volume understates true ETF liquidity: market makers can create and redeem shares against the underlying basket, so a fund with modest daily volume can still absorb large orders near fair value. The spread — not the volume column — is the honest indicator of trading cost. Our screener's Pro columns surface average spreads across the universe so you can compare before choosing where to send an order.
Key takeaway
Check the spread before you buy: (ask − bid) ÷ midpoint. Under 0.10% is excellent, over 0.50% deserves a rethink. For buy-and-hold investors the spread is a minor one-off cost — but choosing the tighter listing of the same fund is free money.
This article is educational content, not investment advice. Capital is at risk; past performance does not predict future returns.