What Is Spread in Trading? Bid-Ask Spread Explained Simply
Think about changing currency at an airport. The board shows two prices: the rate to buy foreign currency and the rate to sell it back. The buy rate is always worse than the sell rate. That gap is the exchange's profit on every transaction — and you lose a little money the moment you walk up to the counter, before the exchange rate even moves.
In trading, the same thing happens with the bid-ask spread. Every time you place a market order, you enter at a slightly worse price than the "true" mid-market price. It is not shown as a fee on your screen, but it costs you on every single trade.
What Is the Bid-Ask Spread?
The bid is the highest price someone is willing to pay for an asset right now. The ask (or offer) is the lowest price someone is willing to sell for right now.
The spread is the gap between these two numbers.
Example: BTC bid: $59,990 BTC ask: $60,010 Spread: $20
When you hit "Market Buy," you pay $60,010 — the ask price. To break even, BTC now needs to rise above $60,010. You have already "lost" $20 the moment you entered, before the price moves at all.
When you later close by hitting "Market Sell," you get $59,990 — the bid. The spread has cost you again on the way out.
How Spread Affects Every Trade
Here is what the full round-trip looks like on a $10,000 BTC position with a $20 spread:
| Action | Price Paid | Slippage vs Mid |
|---|---|---|
| Enter (market buy) | $60,010 | −$10 |
| Exit (market sell) | $59,990 | −$10 |
| Total spread cost | −$20 |
That $20 has nothing to do with the direction BTC moved. It is just the cost of transacting immediately in the market. On larger positions or less liquid assets, this can be significantly higher.
Spread vs Trading Fee: Two Different Costs
These are easy to confuse because both reduce your PnL, but they work differently:
| Spread | Trading Fee | |
|---|---|---|
| How it shows | Built into execution price | Displayed as % charge |
| Who receives it | Market makers (other traders) | The exchange |
| Avoidable? | Yes, with limit orders | Reduced with maker orders |
| Visible on screen? | No — you have to check the order book | Yes |
Both costs stack. A trade has a spread cost and a trading fee. This is why checking the order book before placing large market orders matters.
What Determines How Wide the Spread Is?
Spread size comes down to one thing: how many buyers and sellers are competing at any given moment.
| Asset Type | Typical Spread | Why |
|---|---|---|
| BTC, ETH | Very tight ($1–$10) | Deep order book, constant activity |
| Major altcoins (SOL, AVAX) | Moderate ($0.01–$0.50) | Good liquidity, active market |
| Small-cap tokens | Wide | Few orders, big gaps between bids and asks |
| Memecoins | Very wide | Thin books, high volatility |
| Off-hours (overnight) | Slightly wider on all assets | Fewer active traders |
A thin order book means even a medium-sized order can eat through multiple price levels to fill, resulting in a worse execution price. This is closely related to slippage.
How to Minimize Spread Costs
Use limit orders. When you place a limit order that sits in the book and waits, you become the maker — you are adding liquidity rather than taking it. Another trader fills your order at your price. You capture the spread instead of paying it, and often pay a lower trading fee as well.
Trade liquid markets. BTC and ETH have the tightest spreads of any perpetual market. If you can trade a liquid asset instead of a small-cap alternative, your execution costs will be lower.
Avoid peak volatility for large orders. During major market events, bid-ask spreads temporarily widen as market makers pull orders back to protect themselves. Entering a large position during a news spike often means paying a much wider spread than normal.
Split large orders. Instead of one big market order, break it into smaller pieces and use limit orders to fill gradually at better prices.
Related Terms
- Slippage — the related cost of large orders moving the price as they fill
- Maker-Taker — how limit orders capture the spread vs market orders pay it
- Market Order — the order type that always pays the spread
- Limit Order — avoids paying the spread by becoming the maker
- Order Book — where bids and asks live, and where the spread is formed