Bid–Ask Spread

Gap between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask). These prices come from limit orders—standing offers in the market. If a stock is quoted at $99.98 / $100.00, one trader is bidding to buy at $99.98 while another is offering to sell at $100.00. The ask is always higher, reflecting both the cost of immediacy and the compensation for providing liquidity. The two-cent difference is the spread.

A market order executes immediately against these limit orders. A market buy lifts the $100.00 ask, and a market sell hits the $99.98 bid. If the order size exceeds what’s available at that price, it fills the rest at the next best levels—producing partial fills across multiple prices and a weighted-average execution price slightly different from the quote. That difference is slippage, the cost of instant execution.

A limit order, by contrast, provides liquidity rather than taking it. It trades only at its stated price or better and may be partially filled if opposing volume is limited, with the rest remaining open. Limit orders make up the visible bids and asks, while market orders (or marketable limit orders) cross the spread and fill those resting limits. In other words, every trade occurs when a market order executes against an existing limit order.

Market makers sustain this process by continuously submitting, canceling, and revising their limit orders. When someone sells at $99.98, the market maker buys; when another trader later pays $100.00, the market maker sells and earns the spread—unless prices move first. The ongoing interaction between resting limit orders and incoming market orders is what produces every trade and drives continuous price discovery.

Factoring

Factoring is a form of working-capital financing in which a company sells its receivables—payments due from customers—to a financial intermediary for immediate cash at a discount. A supplier owed $100,000 in 90 days might sell that claim for $97,000 today; the factor collects the full amount later and earns the $3,000 difference as compensation for advancing funds and assuming risk. If the supplier must reimburse the factor if the customer defaults, it’s recourse factoring; if the factor bears the loss, it’s non-recourse. The transaction converts pending payments into liquidity and can also transfer credit risk, improving cash flow without recording a loan.

Reverse factoring applies the same principle but is initiated by the buyer. A large, creditworthy company arranges with a bank or platform to allow its suppliers early payment once invoices are approved. The bank pays the supplier immediately—say $99,500 on a $100,000 invoice—and later collects the full amount from the buyer on the original due date. The supplier voluntarily accepts a modest discount in exchange for faster cash, while benefiting from the buyer’s stronger credit rating. The bank earns the spread, and the buyer preserves its payment terms while supporting supplier liquidity.