What Is Spread in Crypto Trading?

In crypto trading, the spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept.

These prices are known as the bid and ask prices.

The size of the spread may affect the price at which a transaction is completed, particularly when using a market order.

How is spread calculated?

Spread can be expressed as an amount or a percentage.

For example:

Highest bid: S$99
Lowest ask: S$101
Spread: S$2

The percentage spread may be calculated relative to the market price.

A smaller spread generally means the buying and selling prices are closer together.

Why do spreads exist?

Buyers and sellers do not always agree on the same price.

Buyers generally want to purchase at a lower price, while sellers generally want to sell at a higher price.

The difference between those prices creates the spread.

What affects the spread?

Liquidity

More liquid markets often have more buyers and sellers, which may result in narrower spreads.

Trading activity

Higher trading activity may bring bid and ask prices closer together.

Volatility

During periods of rapid price movement, spreads may widen because market participants face greater uncertainty.

Order size

A large transaction may interact with several available prices in the order book.

Market conditions

News, technical disruptions or sudden demand changes may affect spreads.

Why does spread matter?

The spread may represent an indirect cost of completing a transaction.

A user buying at the ask price and immediately selling at the bid price may receive less than the original purchase amount, even if the broader market price has not changed.

Users should review the estimated execution price and fees before confirming a transaction.

Spread vs trading fees

Spread and trading fees are different.

A trading fee is a direct charge associated with completing an order.

The spread is the difference between available buying and selling prices.

Both may affect the total cost of a transaction.

Spread vs slippage

Spread is the gap between the current bid and ask prices.

Slippage is the difference between the expected execution price and the actual average execution price.

Slippage may occur when prices move quickly or when there is insufficient liquidity at the expected price.

Example

A digital asset has a highest bid of S$49 and a lowest ask of S$50.

The spread is S$1.

A buyer using a market order may purchase near the ask price, while a seller using a market order may sell near the bid price, subject to available liquidity.

In summary

The spread is the difference between the best available buying and selling prices.

Spreads may vary depending on liquidity, volatility, trading activity and market conditions.

Understanding spreads can help users better assess possible transaction costs and execution prices.

Quick Answers

Is a smaller spread better?

A smaller spread may indicate that available buying and selling prices are closer together. However, users should also consider liquidity, fees and market conditions.

Is spread the same as a fee?

No. Spread is a difference between prices, while a fee is a direct charge.

Why do spreads widen?

Spreads may widen during volatile periods or when there are fewer active buyers and sellers.

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All opinions expressed here by Coinhako.com are intended for educational purposes, taken from the research and experiences of the writers of the platform, and should not be taken as investment or financial advice.