Being pretty new to the stock market as such, I notice the actual spread, the difference between the 'bid' and 'asking' price can differ a huge amount. Can anyone explain this to a novice please?

You need to take a look at Level 2!

The bid & offer prices are fixed by people who deal SETS. Go to http://www.londonstockexchange.com/trading/sets/about_15.asp - which explains.

The more volume there is - the closer the spread. Also sometimes there aren't enough orders for either bids (which are sets buys) or offers (sets sells) which in turn can increase the spread.

The prices are just guidelines for dealing, which is why it is possible to get better prices! If brokers have enough volume (both selling & buying) going through with own clients they can make money without "topping up" from SETS trades!

Ah, I see, very interesting. I have a lot to learn, thanks for your help......

Look also at SEAQ - it's the same but different :-)

Hello Gausie.......What is 'SEAQ' where do I find it?

SEAQ is a different pricing mechanism to SETS. SEAQ uses competition between market makers, each of whom tries to set a competitive price and guarantees liquidity in the stock. Effectively, the spread you see on screen is the lowest of all the MM's offers, and the highest of all bids.

Every UK stock has a market made either in SETS or SEAQ. SETS tends to be the more liquid stocks (eg FTSE100), SEAQ for less liquid. There are some anomolies, but this generally holds true.

When you look at the MoneyAM trades screen, SETS stocks are charcterised by many AT trades - these are trades directly from the SETS book. SEAQ stocks never have AT trades because they have no book.

Gausie