Price Difference Between Buy and Sell and Slippage: What Traders Need to Know

Key Points

• Spread ( is the difference between the highest buying price and the lowest selling price in the order book.
• Slippage occurs when your order is executed at a different price than expected, often due to a lack of liquidity or significant price volatility.
• Narrow spreads and low slippage are signs of a healthy market with a solid trading foundation.
• Both of these factors directly affect the actual transaction costs beyond the displayed fee.

Why Do Prices Never Match?

When you make a transaction on a cryptocurrency exchange, the market price depends on the balance between supply and demand. In addition to the nominal price, you need to pay attention to the trading volume, the liquidity situation of the market, and the type of order you use.

It is a fact that you do not always get the desired price. There is always a negotiation between the buyer and the seller, which creates a price difference )spread( between the two sides. Depending on the volume of assets you want to trade and the level of volatility, you may face slippage—when the trade does not occur at the expected price.

To avoid unexpected surprises, understanding the order book mechanism will help you trade more confidently.

What is Spread and How Does It Work?

The spread ) is simply the difference between the highest buying price and the lowest selling price of an asset in the order book.

In the traditional market, the spread is usually created by brokers or market-making institutions. However, in the cryptocurrency market, the spread is the result of the difference between the limit orders of buyers and sellers.

If you want to buy immediately: you must accept the lowest selling price from the seller

If you want to sell immediately: you will receive the highest buying price from the buyer

Assets with stronger trading foundations than (, such as forex pairs), will have narrower spreads due to the large volume of orders in the book. Conversely, wider spreads lead to greater price volatility when closing large volume positions.

The Role of Market Makers in Spreads

Liquidity is a key factor for any financial market. If you trade in a low liquidity market, you might wait for hours or even days to find another trader to match your order.

Not all markets have sufficient liquidity solely from individual traders. Market makers play a role in providing liquidity, in return they earn profits from the spread.

How they work: By simultaneously buying and selling an asset, market makers exploit the spread. They sell at a higher bid price and buy at a lower ask price, continuously repeating this process to generate profit.

Even a small spread (, for example: 1 USD), can yield significant profits if the daily trading volume is large enough.

Real-life example: A market maker may offer to buy BNB at $853.60 and sell BNB at $854.60, creating a spread of $1. Anyone wanting to trade immediately must accept their price. The spread ( is the pure profit of the market maker.

High-demand assets will have smaller spreads as market makers compete to narrow the gap.

Depth Chart: Visualizing Spread on the Exchange

On most modern exchanges, you can easily see the spread by switching to the )Depth Chart$1 market depth view.

This chart shows:

• On the left (blue): Buy orders and buying prices
• On the right (red): Sell orders and selling prices

The distance between these two areas is the spread. You can calculate it by taking the selling price (red) minus the buying price (blue).

Clear correlation: High liquidity = small spread

Trading volume is a popular liquidity indicator. Therefore, you will see higher volumes accompanied by smaller spreads ( calculated as a percentage of price ). Cryptocurrencies that are traded frequently will have greater competition among traders, resulting in narrower spreads.

How to Calculate the Spread Rate

To compare the spread between different assets, you need to calculate it as a percentage:

Formula: (Selling price - Buying price) / Selling price × 100 = Spread ratio

Example with TRUMP:

• Selling price: $5.03
• Purchase price: $5.02
• Absolute Spread: $0.01
• Spread rate: (0.01 / 5.03) × 100 ≈ 0.20%

Comparison with Bitcoin:

• If Bitcoin has a spread (- Current price: ~$88,330
• Spread rate: )1 / 88330$1 × 100 ≈ 0.0011%

Although ( is larger than $0.01, the spread rate of Bitcoin is smaller than TRUMP because the price of Bitcoin is much higher. TRUMP has significantly lower trading volume, which proves that the less liquid asset has a wider spread.

Slippage: When Trades Don't Go As Expected

Slippage is a phenomenon that occurs in highly volatile or low liquidity markets. It happens when your trade is executed at a different price than expected.

Example: You place a buy order at your desired price of $100. However, the market does not have enough liquidity at that price. You have to continue executing orders at higher prices )$100.50, $101, etc.$1 until your full order is filled. As a result, your average buy price is higher than $100—that is slippage.

How it happens: When you create a market order, the exchange automatically matches with the best price first. If there is not enough volume at that price, the system will continue to go up the order book to find sellers. This process results in you having to pay different prices, higher than expected.

Slippage is very common on automated market maker tools (AMM) and decentralized exchanges (DEX). For altcoins with low liquidity or high volatility, slippage can exceed 10% of the expected price—a concerning figure.

( Positive Slippage—When Luck Visits

Slippage is not always a bad thing. Positive slippage can occur when:

• Price drops while you are placing a buy order
• The price increases while you are placing a sell order

Although rare, positive slippage can occur in highly volatile markets.

) Slippage Tolerance Settings

Many exchanges allow you to set your own acceptable slippage level to control risk. You will see this option on AMM and DEX platforms.

This setting informs the system: “I accept transactions that may differ by up to X% from the estimated price.”

The impact of the slippage level you set:

• Low level: Your order may take a long time to match or may not be matched at all.
• High level: You risk being front-run from information before ###front-running###—when another trader sees your pending order, they set a higher gas fee to buy ahead, and then sell to you at the price you are willing to accept.

Strategies to Minimize Negative Slippage

Although it is impossible to completely avoid depreciation, you can apply some strategies to minimize the impact:

( 1. Split Large Orders

Instead of placing a large volume order, split it into several smaller orders. Monitor the order book closely to distribute the orders evenly, ensuring that you do not exceed the available volume at each price level.

) 2. Calculate Transaction Fees

If you are using a decentralized exchange, don't forget to factor in gas fees. Some blockchains have high fees depending on network conditions, which can eat into the profits you expect to earn.

3. Prioritize Assets with Good Liquidity

Avoid trading assets with low liquidity or small liquidity pools. Your trading activity can significantly impact the price, causing you to incur additional losses. Choose markets with a more solid trading foundation.

4. Use Limit Orders Instead of Market Orders

Unlike a market order, a limit order is executed only at the price you specify or better. You may have to wait longer, but this is a reliable way to avoid excessive slippage.

Conclusion

When trading cryptocurrencies, remember that the spread and slippage are factors that can change your final trading costs. You can't always avoid them, but you need to carefully consider each trading decision.

With small transactions, the spread may be negligible. However, with large volume orders, the average price per unit can be significantly higher than expected. For anyone participating in decentralized finance, a clear understanding of slippage is essential foundational knowledge that cannot be overlooked. Lacking knowledge on this issue, you will face a high risk of losses due to front-running or excessive slippage.

Additional Reference

• Understanding Funding Rate in the Cryptocurrency Market
• RFQ Trading Strategies on the Exchange
• Day Trading or HODLing: Which Strategy is Right for You?