Financial Dictionary.
This is a browseable and searchable reference tool for terminology
relating to UK-based personal finance and financial products.
You can browse alphabetically, or search for a specific term.
Bid / Offer Spread
Definition: Until recently, funds generally had two prices - a buying price (Offer Price) and a selling price (Bid Price). The difference between the two values is known as the 'spread', which was usually about 5%, but can be lower of higher. Effectively, this is an additional charge imposed by fund managers, to cover costs such as administration, commission and dealing costs. Therefore, the effects of the spread needs to be overcome by investment growth before the units are truly growing in value. This effect is known as the Reduction in Yield. Recently, insurance funds and OEICs have introduced the concept of a single-priced charging structure, at which there is a single price for the buying and selling of units, with the only charge being an Annual Management Charge (although many OEIC managers levy an initial entry charge upon new investments).
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