Trading, Accounts & Prohibited ActsQuestion 196 of 398
Compared with a stock that has a wide bid-ask spread, a stock with a very narrow spread most likely indicates:
a.Lower liquidity and infrequent trading
b.Higher liquidity and active trading
c.A pending stock split
d.An upcoming dividend payment
Explanation
A narrow spread typically reflects high liquidity, tight competition among market makers, and heavy trading volume. A wide spread is more common in thinly traded, less liquid securities where the cost of trading is higher.
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