What Is a Bid-Ask Spread?
The bid-ask spread is the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept. It is the cost of immediate execution, and it is the first number anyone uses to judge how liquid a market is.
Most explanations of the spread are written for traders deciding where to place an order. This one is written for teams who own a token and need to read what the number says about their own market.
Key points
- The spread is the gap between the top of the bid side and the top of the ask side of an order book.
- Calculated as a percentage of the ask price, it becomes comparable across assets.
- Tight spreads indicate competition and available liquidity. Wide spreads indicate the opposite.
- Depth, volatility, venue, and the number of firms quoting all move it.
- A tight quote with no size behind it tells an incomplete story.
How the spread forms
An order book holds two sides. Bids are limit orders from buyers, stacked downward from the highest price offered. Asks are limit orders from sellers, stacked upward from the lowest price accepted. The distance between the top of each stack is the spread.
Anyone who wants to trade immediately crosses that gap. A buyer takes the lowest ask. A seller hits the highest bid. The gap is paid on entry and again on exit, and it never appears on a fee schedule.
On centralized exchanges, the spread is set by whoever posts limit orders, which in practice means market makers on most pairs. On decentralized exchanges built on automated market makers, there is no order book, and the equivalent cost is embedded in the pool's pricing curve and swap fee.
How to calculate the bid-ask spread
Subtract the bid from the ask. That is the spread in absolute terms.
To compare across assets, convert it to a percentage:
Spread % = (Ask − Bid) / Ask × 100
A token quoted at $9.99 bid and $10.00 ask has a $0.01 spread, or 0.10%. A $1 spread on a $70,000 asset is 0.0014%. The dollar figures look similar. The markets are not remotely comparable.
Typical spread ranges
Professional desks quote spreads in basis points. One basis point equals 0.01%.
- BTC and ETH on tier-1 venues. Well under 1 bp in normal conditions. Kaiko has recorded BTC spreads of 0.1 bp on Kraken and 0.3 bp on Coinbase, with offshore USDT pairs tighter still.
- Top-30 assets on major venues. Roughly 1 to 5 bps, varying by pair and venue.
- Actively supported small caps. Above 2 bps on most centralized exchanges, often into the low tens.
- Thin pairs, tier-3 venues, and shallow DEX pools. Tens to hundreds of basis points, and effectively unbounded when nobody is quoting.
These figures are indicative and move constantly. During the volatility around the January 2024 ETF approvals, BTC spreads on Kraken briefly reached 10 bps, an order of magnitude above their normal level.
One caveat worth holding onto. The spread is a proxy for liquidity, and it also reflects exchange fee structures and maker incentive programs. A venue running a zero-fee promotion can show artificially tight quotes while depth sits elsewhere. Comparing the same asset across venues requires knowing what each venue is paying its makers.
What moves the spread
Depth
More resting size near the mid price means tighter quotes. Thin books force wider ones.
Volatility
Quoting a two-sided price means holding inventory. When price moves faster, that risk rises, and quotes widen to compensate. Spreads across the whole market widen during liquidation cascades.
Number of participants
Competition compresses spreads. When several firms quote the same pair, each has an incentive to improve on the other's price.
Venue
The same token can show 0.1% on one exchange and 2% on another. Fee structures, maker rebates, and the local trader base all differ.
Asset price
Low-priced tokens often show wide percentage spreads because the minimum tick size is large relative to the price.
What the spread does not tell you
The spread describes the top of the book and nothing below it.
A market can quote a two basis point spread with $500 of size behind it. The number looks institutional. A $50,000 order will walk straight through it and fill three percent away from the quote.
This is why the spread is read alongside depth, usually measured as size available within 0.5%, 1%, and 2% of the mid price. The spread says what the first trade costs. Depth says what a real trade costs.
Why the spread matters for a token project
The spread is one of the metrics through which outside parties form a judgment about a token.
Exchanges monitor it. Listing teams review spread and depth when deciding on new pairs, promotional support, and continued listing. Persistent wide quotes read as a market nobody is supporting.
Funds check it before sizing a position. An allocator asking whether they can build and exit at reasonable cost is asking a spread and depth question.
Traders feel it without naming it. Wide, unstable quotes read as an unreliable market, and that perception attaches to the project.
Volume answers none of this. Volume can be manufactured. A tight two-sided quote held continuously requires real capital exposed to real risk on both sides, which is harder to fake.
Where market making fits
A market maker holds continuous bid and ask quotes, absorbing the imbalance between buyers and sellers who arrive at different times. The spread compensates for the inventory risk of standing on both sides.
The arrangement is measured in those terms: target spread, minimum depth at set distances from mid, and uptime, meaning the share of time the quotes are actually live. Reporting against those three numbers is what separates a functioning mandate from an expensive one.
Arc Trading operates on that basis across centralized and decentralized venues, with spread, depth, and uptime reported transparently.
Reviewing your token's spread and depth across venues? Talk to Arc Trading
FAQ
What is a good bid-ask spread for a crypto token?
It depends on market cap and venue. Under 0.1% is strong for a mid-cap token on a tier-1 exchange. Above 1% signals thin support. Compare against tokens of similar size on the same venue rather than against BTC.
How do you calculate the bid-ask spread?
Subtract the bid from the ask. For a percentage, divide that difference by the ask price and multiply by 100.
Do I buy at the bid or the ask?
A buyer taking immediate execution pays the ask. A seller taking immediate execution receives the bid.
Why do spreads widen?
Falling depth, rising volatility, fewer firms quoting, or a combination. All three tend to happen at once during market stress.
Is a tight spread proof of good liquidity?
No. The spread covers only the top of the book. Depth behind the quote determines what happens to orders of meaningful size.
Does the bid-ask spread affect exchange listings?
Yes. Exchanges track spread, depth, and uptime on listed pairs and factor them into promotional support and listing reviews.
Disclaimer
This article is provided by Arc Trading for informational purposes only. It is not financial, investment, or trading advice, or a recommendation to buy or sell any asset. Digital assets carry significant risk. Do your own research before making decisions.
