TL;DRThe bid is the highest price a buyer will pay. The ask is the lowest price a seller will accept. The spread between them is the cost of trading.
Every futures contract has two prices at all times. The bid is the highest price any buyer is willing to pay. The ask (also called the offer) is the lowest price any seller is willing to accept.
If ES shows a bid of 5,200.00 and an ask of 5,200.25, the best buyer will pay 5,200.00 and the best seller will accept 5,200.25. If you want to buy immediately, you pay the ask. If you want to sell immediately, you receive the bid.
The spread is the difference between bid and ask. In ES, that's typically 0.25 points (one tick, $12.50). This spread is effectively the cost of an immediate trade.
Tight spreads mean the market is liquid and cheap to trade. Wide spreads mean less liquidity and higher costs. During overnight sessions or in thin contracts, spreads can widen to several ticks.
Every market order round trip costs you the spread twice: once to enter and once to exit. On ES with a one-tick spread, that's $25 per round trip per contract.
For scalpers making many trades, spread costs add up quickly. Limit orders can avoid paying the spread by sitting at the bid or ask, but they risk not filling.
One-tick spread on ES
ES bid is 5,200.00, ask is 5,200.25. You buy with a market order and immediately sell.
You buy at 5,200.25 and sell at 5,200.00. You lose $12.50. This is the round-trip spread cost.
Wide spread overnight
At 2 AM, ES bid is 5,198.00 and ask is 5,199.00. That's a 4-tick spread ($50).
Your market order fills at the ask, starting you $50 behind. Use limit orders during thin sessions.
Ignoring the spread when calculating profitability
A strategy making 2 ticks per trade only makes 1 tick after the spread. Factor it into every backtest.
Using market orders during wide-spread conditions
If the spread is wider than normal, use a limit order.
Not checking the spread before entering
Always glance at the bid-ask spread before placing an order.