Bid-Ask Spread

The bid-ask spread is more than a simple price gap: it functions as the market's built-in measure of trading friction, since a narrower or wider spread directly changes what a trade costs beyond the exchange's posted fees. Because market makers profit by capturing part of that gap, they compete to quote the tightest prices whenever demand for an asset is strong.

On centralized exchanges, spread width mirrors order book depth. When many buy and sell orders sit close to the current price, a trade fills without eating through several price levels, keeping the gap small. Thin books, common with small-cap tokens or low-volume pairs, mean even a modest market order can consume the best quotes and jump to the next level, widening the spread in real time. Decentralized exchanges built on automated market maker pools follow the same logic: the less liquidity a pool holds, the more a trade shifts the price, producing a wider effective spread and greater slippage for the trader.

Spread width also tracks volatility and venue fragmentation. During sharp price swings, market makers pull back or widen their quotes to offset the risk of being caught on the wrong side, so a spread that sits near a few basis points in calm conditions can balloon during a crash or a surprise announcement. Because an asset like Bitcoin trades across dozens of venues with no single consolidated order book, the same coin can show a tighter spread on a high-volume exchange than on a smaller one at the same moment.

Traders comparing spreads as a percentage of price, rather than in absolute terms, get a more consistent read on which markets are genuinely cheap to trade.