Bid and ask prices are determined by the balance of supply and demand, the actions of market participants, the presence of market makers, and the overall liquidity and volatility of the market.
Highly liquid markets, with many buyers and sellers, tend to have narrower bid-ask spreads because there is less risk and more competition among market participants.
In contrast, in illiquid or highly volatile markets, bid-ask spreads can widen due to the increased risk and uncertainty buyers and sellers face.
