Understanding the Bid-Ask Spread: Why Your Trade Price Matters

When you place a buy or sell order on a cryptocurrency exchange, you’ve probably noticed that the price you get isn’t always exactly what you see on the chart. That gap between what sellers are asking for and what buyers are willing to pay? That’s the bid-ask spread, and it’s fundamental to how markets operate.

How the Bid-Ask Spread Actually Works

The bid-ask spread represents the difference between the highest buy order (bid price) and the lowest sell order (asking price) in the order book. Think of it this way: if buyers are offering $40,000 for Bitcoin and sellers want $40,010, that $10 difference is the spread. Sounds small, but multiply that across millions of trades, and it becomes significant.

This spread can originate from two sources. In traditional markets, brokers intentionally create spreads as their primary revenue stream. They essentially act as the liquidity provider—if you want to trade, you accept their prices or you don’t trade at all. Many brokers advertise “commission-free” trading, but they’re making money through these spreads by buying low from sellers and selling high to buyers.

The Crypto Exchange Difference

Cryptocurrency exchanges operate differently. Here, users directly submit their own buy and sell orders into the order book—the exchange itself isn’t setting prices. This means crypto exchanges earn from trading fees rather than from maintaining spreads. As a result, the bid-ask spread is purely a reflection of market dynamics: what traders collectively decide are fair buying and selling prices.

What Determines Spread Size?

This is where liquidity becomes critical. In highly active markets with significant trading volume, you’ll notice tighter spreads. Why? Simple: more buyers and sellers competing means prices converge. Someone’s always willing to pay closer to the mid-price, and someone’s always willing to sell closer to it too.

Conversely, less liquid markets with lower trading volume tend to show wider spreads. There’s less competition to narrow that gap, so the difference between bid and ask prices grows larger. This directly impacts your execution price and overall trading costs.

Understanding the bid-ask spread helps you make smarter trading decisions and recognize when liquidity conditions are working in your favor—or against it.