spread bid

What Is the Bid-Ask Spread?

The bid-ask spread refers to the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) in the order book, reflecting the gap between buyers’ and sellers’ expectations at any given moment. Similar to the difference between wholesale and retail prices in traditional markets, the bid-ask spread is a direct indicator of market liquidity and trading costs.

Within an exchange’s order book, bids represent buy orders at specified prices, while asks are sell orders at chosen prices. The highest bid is known as the bid price, and the lowest ask is called the ask price. The spread is simply the ask price minus the bid price. A narrower spread typically signals better liquidity and makes it easier to execute trades near the mid-market price.

Why Does the Bid-Ask Spread Exist?

The bid-ask spread exists because liquidity providers require compensation for taking on risk and covering operational costs, and supply and demand are rarely perfectly matched at all times.

Market makers are specialized participants who quote both buy and sell prices and absorb inventory risk. To cover risk, capital costs, and technology expenses, they set a spread between bids and asks. Liquidity—how many traders are willing to transact instantly—is a key factor; when liquidity is low, spreads widen. Higher volatility or sensitivity to news usually results in wider spreads to protect against sudden price movements.

How To View Bid-Ask Spread on an Exchange Interface?

On Gate, you can observe the bid-ask spread by viewing the top rows of quotes in any spot trading pair’s order book.

Step 1: Locate the bid price and ask price. For example, the bid price may be 10,000 and the ask price 10,005.

Step 2: Calculate the spread. The difference is 5; for a more intuitive ratio, divide this by the mid-price (the average of bid and ask), so (10,000+10,005)/2 ≈ 10,002.5. The spread ratio ≈ 5/10,002.5 ≈ 0.05%.

Step 3: Repeat this observation across different times and pairs. Major trading pairs typically have tighter spreads, while less popular or low-volume pairs have wider spreads. These numbers are for illustration purposes only.

What Does the Bid-Ask Spread Mean for Trading Costs?

When executing a market order, the bid-ask spread becomes an implicit cost because your order will cross the book, buying at the ask or selling at the bid.

For example: On Gate, if you place a market buy order with a bid price at 10,000 and an ask price at 10,005, you will transact at or near 10,005—not 10,000. In addition to explicit platform fees, that 5-point spread is part of your real trading cost. Using a limit order near the bid or a better price can reduce spread impact but comes with opportunity cost—the trade might not fill immediately.

Large orders may also encounter slippage—when execution prices deviate from expectations due to insufficient order book depth. If your order moves through multiple price levels, total costs can far exceed the visible spread; therefore, monitoring depth and splitting orders can help manage costs.

How Does the Bid-Ask Spread Vary Across Crypto Markets?

Bid-ask spreads differ widely depending on asset type, trading method, and market conditions.

Major pairs & stablecoins: Bitcoin, Ethereum, and stablecoin pairs like USDT/USDC typically feature narrow spreads due to high participation and deep liquidity.

Small-cap or newly listed tokens: Limited interest and sparse orders result in wider spreads, especially during volatile news events.

Spot vs derivatives: Derivatives markets often have narrower spreads for major contracts due to more active market making and hedging mechanisms—but can still widen rapidly during extreme volatility.

Order book vs AMM: In decentralized exchanges, automated market makers (AMMs) provide liquidity via liquidity pools and pricing formulas. Here, the spread appears as “slippage” based on pool depth—the shallower the pool, the greater the price impact from trades of equal size, resulting in higher effective spreads.

How To Minimize Bid-Ask Spread Impact?

You can reduce your exposure to bid-ask spread costs by choosing optimal trading methods and timing.

Step 1: Prefer pairs with high liquidity and trade during active periods—more orders and volume lead to tighter spreads.

Step 2: Use limit orders instead of blindly executing market orders. Limit orders let you define acceptable prices and avoid crossing wide spreads.

Step 3: Split large orders and watch order book depth—breaking big trades into smaller ones reduces slippage from crossing multiple price levels.

Step 4: Set price protection features on Gate or use conservative trigger conditions to avoid filling too many orders in extreme market moves.

Step 5: Consider making markets or using maker fee rates for added cost advantages (actual discounts depend on platform rules)—sometimes patience can save you money by securing better prices.

Risk Reminder: Low-liquidity pairs can see spreads widen sharply during news events; market orders may cause unexpectedly high costs—always assess in advance.

How To Evaluate Bid-Ask Spread Together With Trading Fees?

Total trading costs include explicit fees, bid-ask spread as implicit costs, plus potential slippage.

Step 1: Estimate spread cost—divide the difference by mid-price (e.g., spread of 5 vs mid-price of 10,002.5 equals roughly 0.05%).

Step 2: Add platform fees—if the rate is 0.1% (example only; actual rates depend on Gate’s fee schedule and your account tier), then a single market trade incurs nominal cost of about 0.05% + 0.1%.

Step 3: Factor in slippage for large orders—low depth can add extra cost on top of spread and fees.

Practical Tips:

• For small trades where timing is critical, accept modest spreads with market orders.
• For large or less time-sensitive trades, use limit orders and split execution to optimize pricing.
• Regularly review your total costs across pairs and timeframes to refine your strategy.

Key Takeaways on Bid-Ask Spread

The bid-ask spread is the difference between the best available buy and sell prices—a direct reflection of liquidity and transaction cost. It exists to compensate risk and costs borne by liquidity providers and varies with depth and volatility. You can view and calculate spreads directly in Gate’s order book; in practice, select liquid pairs, use limit orders or split your trades, and set protective parameters to minimize both spread and slippage impact on your costs. For realistic cost assessment, combine spread, fees, and slippage; exercise caution with market orders during periods of low liquidity or high volatility to avoid excessive spending.

FAQ

What Is the Difference Between Bid Price and Ask Price?

The Bid Price is the highest price a buyer is willing to pay; the Ask Price is the lowest price a seller will accept. The difference between them is called the bid-ask spread. When buying, you execute at the Ask Price; when selling, you transact at the Bid Price—this spread represents your hidden trading cost.

Why Are My Buy Price and Sell Price Always Different?

This is because exchanges must compensate liquidity providers—the bid-ask spread is that compensation. When buying you pay the higher Ask Price; when selling you receive the lower Bid Price. This gap ensures there are enough participants ready to transact; otherwise, you might wait a long time for a match.

How Much Does Bid-Ask Spread Affect My Actual Returns?

The bid-ask spread is an implicit cost that directly affects your break-even point. For example, if the spread is 0.1%, you need prices to rise by at least 0.1% just to break even—plus any explicit fees pushes that threshold even higher. In high-frequency or small-size trades, the spread may comprise 30–50% of your total costs—making it a critical factor not to ignore.

Do Liquid Coins Have Tighter Spreads Than Illiquid Ones?

The difference is significant. Major coins like Bitcoin or Ethereum often see bid-ask spreads in the range of 0.01–0.05%, thanks to high trading volume; small-cap coins may face spreads of 0.5–2% or more. Trading major coins on Gate typically means tighter spreads and lower transaction costs—one reason why beginners are advised to start with mainstream assets.

How Should I Trade When Spreads Are Wide?

Consider posting limit orders rather than executing market trades. If you’re not in a rush, you can place an order near the mid-price between bid and ask and wait for market movements to fill it—this avoids paying the full spread out of pocket. Also focus on high-volume pairs with good liquidity to keep spread costs minimal.