In the context of financial markets, the bid-ask spread is a key indicator of market liquidity. A narrow spread often indicates a highly liquid market, where buyers and sellers agree on prices more easily. Conversely, a wide spread can signal a less liquid market, which can lead to greater price volatility. The spread compensates market makers for the risk they assume in facilitating trades between buyers and sellers. Factors that influence the bid-ask spread include trading volume, asset volatility, and market conditions.