Why does a stock have a bid-ask spread at all?
A stock is quoted bid, offered. A market maker is simultaneously willing to buy at and sell at .
Why does the spread exist, and what is it compensating the market maker for?
Show a hint
The market maker buys low and sells high only if buyers and sellers arrive in a friendly mix. Think about who tends to trade against them, and what can go wrong between one fill and the next.
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.