The size of the spread on stocks that have relatively little trading is
A) smaller to reflect the lower degree of uncertainty.
B) the same as that of stocks with higher volumes of trading.
C) wider to reflect the higher degree of uncertainty.
D) not affected by trading volume.

Question

Quizplus · Accepted Answer

Stocks with little trading volume have lower liquidity, which means that it might be harder to find buyers and sellers who are willing to trade at a particular price. Therefore, market makers widen the bid-ask spread on these stocks, to compensate for the higher degree of uncertainty and risk involved with trading them.

The Size of the Spread on Stocks That Have Relatively