What does the term "spread" in trading refer to?

The term "spread" in trading specifically refers to the difference between the bid price and the ask price of a security. The bid price is the maximum price that a buyer is willing to pay for a security, while the ask price is the minimum price at which a seller is willing to sell it. The spread is an important concept in trading as it can indicate the liquidity of a security; a narrower spread often suggests that a security is more liquid and actively traded, whereas a wider spread may indicate lower liquidity and higher transaction costs for traders.

In this context, the other options do not accurately describe what a spread is. The total value of a security based on market capitalization refers to the overall valuation of a company and is calculated by multiplying the stock price by the total number of outstanding shares, but this does not relate to the concept of spread. The average price at which a security is traded involves looking at historical trade prices over time and does not involve bid and ask prices directly. Profit from selling a security above its purchase price describes capital gains or profit realization, but again, this does not pertain to the spread in trading.