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Learn exactly what the bid-ask spread is in crypto, why it exists, how it affects your trading costs, and how to minimize spread costs in 2026.
What is the Bid-Ask Spread? The Hidden Cost of Every Trade
The bid-ask spread is the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask) for an asset at any given moment. It is the most fundamental cost of trading, present in every market and on every exchange.
When you buy an asset at market price, you pay the ask. When you sell at market price, you receive the bid. If you buy and immediately sell at market prices, you lose the spread as a cost. For a Bitcoin with a bid of $49,990 and an ask of $50,010, the spread is $20, or 0.04 percent round-trip.
Most traders focus on commissions and fees but underestimate the bid-ask spread as a trading cost. On liquid assets like Bitcoin during normal market conditions, the spread is minimal. On illiquid assets or during volatile periods, spreads can widen dramatically and represent a significant implicit cost.
Why Does the Bid-Ask Spread Exist?
The bid-ask spread exists as compensation for market makers who provide liquidity by continuously quoting both sides of the market.
Market makers take on inventory risk: when they sell to a buyer, they hold less of the asset and have exposure to price moves. When they buy from a seller, they hold more. The spread compensates them for this risk and for the cost of maintaining continuous two-sided quotes.
The spread also compensates market makers for adverse selection risk. Some traders have superior information about where prices are heading. Market makers cannot distinguish informed traders from uninformed ones and must price the spread to be profitable on average across all types of counterparties.
In efficient markets, the spread reflects these costs accurately. In less efficient or less liquid markets, market makers demand wider spreads to compensate for higher uncertainty and lower trading frequency.
What Affects Spread Width
Several factors determine how wide or narrow the spread is for any given asset at any given time.
Liquidity is the primary determinant. Bitcoin on Coinbase has thousands of orders stacked near the current price, creating intense competition among market makers and very tight spreads. A small-cap altcoin might have only a handful of orders near the mid-price, resulting in spreads of several percent.
Volatility widens spreads. During periods of rapid price change, market makers face higher inventory risk and demand wider spreads to compensate. Immediately after major news or during crashes, spreads on even liquid assets widen significantly.
Time of day affects spreads on exchanges with meaningful geographic concentration in their user base. Trading activity and thus spread tightness varies across the 24-hour cycle, with typically tighter spreads during peak trading hours.
Bid-Ask Spreads on DEXs vs. CEXs
Decentralized exchanges using AMM models do not have explicit bid-ask spreads in the traditional sense, but they have equivalent implicit costs through price impact and swap fees.
When you swap on Uniswap, you are trading against a liquidity pool rather than a matching counterparty. The AMM formula means that your trade moves the pool's price, with the magnitude of movement depending on trade size relative to pool size. This price impact functions like a spread: you are effectively buying at a price above or below the pool's mid-price.
The pool fee, typically 0.05 to 0.3 percent depending on the tier, is added on top of the price impact. For small trades in large, liquid pools, total cost is competitive with CEX spreads. For large trades or in small pools, the price impact can make DEX execution significantly more expensive.
DEX aggregators like 1inch split large orders across multiple pools and routing paths to minimize total price impact, effectively optimizing for the best execution equivalent to finding the tightest effective spread across available liquidity.
Minimizing Spread Costs in Practice
Several practical approaches reduce the drag of bid-ask spreads on trading performance.
Use limit orders instead of market orders whenever timing is not critical. Limit orders add liquidity to the book and execute at the midpoint rather than at the ask for buys or the bid for sells. Many exchanges charge lower fees for limit orders than market orders. The combined benefit of executing at a better price and paying lower fees makes limit orders significantly cheaper for patient traders.
Trade during high-activity periods when spreads are tightest. For major crypto pairs, peak trading hours typically coincide with US and European session overlaps.
Avoid trading illiquid assets at market price with large sizes. The combination of wide spreads and price impact from moving through thin order books can make entry and exit costs in illiquid assets very high. Check order book depth before entering any position in unfamiliar assets.
Spreads: Small Per Trade, Significant Over Time
The bid-ask spread is one of those costs that seems trivial on any individual trade but compounds into a meaningful drag on performance over hundreds or thousands of trades. Professional traders optimize obsessively for execution quality precisely because they understand this compounding effect.
For retail traders, the practical lesson is simple: use limit orders, trade liquid assets, and understand that the price you see quoted is not always the price you will pay.
Developing awareness of spread costs as a real component of trading expenses, alongside commissions and fees, is part of developing a genuinely professional approach to market execution.
This information, including any opinions and analyses, is for educational purposes only and does not constitute financial advice or recommendation. You should always conduct your own research before making any investment decisions and are solely responsible for your actions and investment decisions.
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