Bid-Ask Spread in Crypto Trading: What It Is and How It Affects Your Cost
The bid-ask spread is one of the first things to check on an order book, and it is a cost many new traders overlook. Fees get the attention, but the spread is paid on every market order too.
What the Bid and Ask Are
An order book lists buy orders and sell orders waiting to be matched. The bid is the highest price a buyer is currently willing to pay. The ask is the lowest price a seller is currently willing to accept. The bid-ask spread is the gap between the two.
A Simple Example
Say the best bid for a coin is 100.00 and the best ask is 100.10. The spread is 0.10, or about 0.1% of the price. If you buy at the market, you pay 100.10. If you sell straight away at the market, you receive 100.00. The round trip costs you the spread before any fees are counted.
Why Spreads Differ Between Markets
Spreads depend on how many orders are resting on the book and how close together they sit. Busy markets with many buyers and sellers tend to have narrow spreads. Thinly traded markets tend to have wider ones, because there are fewer orders near the current price.
Why the Spread Widens
Spreads can widen during fast price moves, when traders pull their orders or hold back. They can also widen outside peak trading hours, or when news arrives. A wide spread is a signal that liquidity is thin and that a market order may cost more than usual.
Spread, Fees and Slippage Together
Three costs add up when you trade:
- Spread: the gap between the best buy and sell prices.
- Fees: Bitval's spot fees are 0.12% for makers and 0.145% for takers.
- Slippage: the extra cost when a large market order uses up the best prices and fills deeper in the book.
Looking at only one of them understates what a trade costs.
How to Reduce the Cost of the Spread
- Use a limit order priced inside the spread, so you are not crossing it. A limit order that rests on the book is also a maker order, which carries the lower fee on Bitval.
- Avoid market orders in thin markets or during sharp moves.
- Check the depth on the order book before placing a large order.
- Compare the spread with the size of the move you expect before you trade.
Where to Look
The best bid and best ask are shown at the top of the order book on any trading screen. The distance between them is the spread. Watching it for a few minutes tells you how the market behaves at different times of day.
You can create a Bitval account and view the order book on the markets Bitval offers.
This article is for informational purposes only and does not constitute financial advice. Crypto trading carries a risk of loss, and costs such as spreads and fees reduce any result.
