First up, what's a spread?
A spread is the difference between the buying and selling price of a stock or other financial security.
Market makers are financial institutions that provide liquidity to the market by being willing to buy or sell at any time. They maintain a difference ('spread') between their buying (AKA the bid) and selling (AKA the ask) prices and make money from that difference.
So if you want to sell a share of Tesco, the market maker might bid £2.08. If you want to buy a share of Tesco, the market maker might ask £2.10. So the spread would be 2p!
That's the market maker business model: charging the spread in exchange for being always willing to take the other side of deals.
Does Freetrade make money from the spread?
Like most retail stockbrokers, we execute our customers' trades with market makers. However, we don't make any money from the spread they charge.
We always seek best execution for our customers. This means it's our duty to get them the best available deal, which involves factors like:
Likelihood of successful execution and settlement
You can get more detail in our Order Execution policy.