speculators can then sell/buy to/from them and if they are doing it well, they make a profit. (and help narrow the spread.) sure, great, they even inject some liquidity. but why do we want a narrow spread? it only helps people who don't know which side of the trade they would rather be on, no?
The bid/ask spread is never good, as it is a fixed transaction cost no matter what side you play. In fact, the equity under consideration has to move greater than the spread to even realize a profit -- with the spread, you are always "buying high, selling low". With very narrow spreads, the spread is only a few cents at most and this consideration evaporates.
The spread also compounds quickly. A wide spread indicates low volume and a sparse order book. This means if you need to offload even say 100 shares, you can single-handedly as a retail investor, widen the spread yourself and take an even larger loss.
Liquidity injects supply/demand and its always a good thing for retail investors. It goes past the stock market as well, spreads are why pawn shops, thrift stores, and even eBay can be profitable in certain goods and with other goods, not so much.
You can absolutely set limit orders, but depending on the limit, other people may or may not be willing to trade with you. Your order can sit all day and never be accepted.
If I want to sell AAPL, and set the limit oder to $1/share, buyers would take that trade instantly. But if I set the limit order to $10k/share, nobody would buy from me.
The exact same thing happens with the buy side.
It's like haggling with the vendor on the street corner or negotiating with your car dealer.
Think of it like a liquidity tax. Jane Street and other market makers(Citadel, etc) compete over that liquidity tax. The more often a fund, ETF or stock is traded, the lower the liquidity tax.
If XYZ Corp is very illiquid and only trades a few shares a month, then Jane Street will charge you a lot of tax to allow you to trade it instantly, because they have a harder time knowing what they can get for it a month from now when someone actually wants the trade.
Notice something like SPY(S&P 500 fund) is basically free to trade, but something like EEH costs you a very pretty penny to instantly trade. For EEH, you might be better off re-issuing limit orders and just hoping someone comes along that wants that fund. If you let Jane Street or other market makers handle the trade, they will charge you more than it's worth to trade.
speculators can then sell/buy to/from them and if they are doing it well, they make a profit. (and help narrow the spread.) sure, great, they even inject some liquidity. but why do we want a narrow spread? it only helps people who don't know which side of the trade they would rather be on, no?