I nvesting involves so many costs, fees and charges that sometimes I think my assets stand about as much chance as a stick of pepperami in a piranha tank.

The bid-offer spread is yet another oft-overlooked cost that will nibble away at your returns unless you take evasive action. And, as a passive investor. one thing that I’m active about is costs.

The bid-offer spread (or bid-ask spread in the US) afflicts passive investors who use Exchange Traded Funds (ETFs) and to a lesser extent Unit Trusts. The spread is the difference in the buy and sell price offered for a security at any given time.

Just like when you convert foreign currency at a Bureau de Change, it always costs a little more to buy than it does to sell .

An example will help explain:

Consider the FSTE Magic Upside Generator ETF (Ticker: MUG).

The bid price (i.e. the highest price I can sell for) = 99p

The offer price (i.e. the lowest price at which I can buy) = 101p

The bid-offer spread = 2p per share (or 1.98%)

The bid-offer spread therefore costs me 1.98% from the moment I buy into the MUG ETF, on top of any other trading fees like broker’s commissions.

Once Ive bought, I’ll have to see the bid price to rise to 101p before I break even on the deal (ignoring all other costs).

Tighter is better

Clearly, the tighter the bid-offer spread, the better off you are. But unfortunately, there’s no such thing as a ‘normal’ or ‘acceptable’ bid-offer spread.

The spread reflects the nature of the fund’s underlying securities like a bulge beneath your t-shirt reflects an underlying fondness for pies.

Heavily traded, liquid securities have lower bid-offer spreads because its easier to match up the buyers and sellers of such popular fare, which lowers the middlemans transaction costs 1. If your desired ETF tracks the FTSE 100, the spread can be as little as a few hundredths of a percent.

In contrast emerging market funds generally have wider spreads. reflecting the higher cost of trading in more illiquid shares.

Some ETFs carry huge bid-offer spreads of over 3% – a massive cost clobbering to take.

Where to find the bid-offer spread

Bid-offer prices can be found on the website of the ETF provider, via your online broker, or through the stock exchange itself.

To give you a taste of what to expect, here’s a quick sample of bid-offer spreads, using January 28 closing prices for some UK-listed ETFs: