When you look at the price of a cryptocurrency, you may see one number displayed prominently on the screen. However, there are usually two important prices behind that number: the bid price and the ask price.
The bid is the highest price that a buyer is currently willing to pay. The ask is the lowest price that a seller is currently willing to accept. The difference between these two prices is called the bid-ask spread.
For practical trading guidance on related topics, explore Dollar-Cost Averaging (DCA) in Crypto: Step-by-Step Strategy to Reduce Market Timing Risk and How to Read Crypto Candlestick Charts: A Complete Visual Guide for Beginners.
Understanding the spread is important because it affects the real cost of buying and selling an asset. Even if an exchange advertises low trading fees, a wide bid-ask spread can make a transaction more expensive than expected. The spread also provides useful information about liquidity and current market conditions.
What Are Bids and Asks?
A bid is an offer to buy. In an order book, buyers place bids at prices they are willing to pay for an asset.
An ask, sometimes called an offer, is an instruction to sell. Sellers place asks at prices they are willing to accept.
Imagine a crypto asset with these prices:
- Highest bid: $99.80
- Lowest ask: $100.20
The bid-ask spread is $0.40.
A buyer who wants immediate execution will generally need to buy at the ask price of $100.20. A seller who wants immediate execution will generally need to sell at the bid price of $99.80.
The difference between those two prices is part of the trading cost. The buyer enters above the last midpoint, while the seller exits below it.
Why the Spread Exists
The spread exists because buyers and sellers do not always agree on the exact value of an asset at the same moment.
A buyer may believe the asset is worth slightly less and place a lower bid. A seller may want a slightly higher price and place a higher ask. When a buyer accepts the ask or a seller accepts the bid, a trade occurs.
Market makers and other liquidity providers may place orders on both sides of the order book. They take on the risk of buying and selling as prices move, and the spread can help compensate them for that risk.
In active markets with many participants, buyers and sellers are often closer together. This tends to create a narrow spread. In less active markets, there may be fewer orders and a larger gap between bids and asks.
Narrow Spreads and Wide Spreads
A narrow bid-ask spread usually suggests that an asset has stronger liquidity. There are more willing buyers and sellers near the current price, making it easier to trade without a large difference between buying and selling.
For example:
- Highest bid: $100.00
- Lowest ask: $100.01
The spread is only $0.01. In this case, the cost created by the spread is relatively small.
A wide spread may suggest lower liquidity, higher uncertainty, or more volatile conditions.
For example:
- Highest bid: $100.00
- Lowest ask: $103.00
The spread is $3.00. A buyer who enters immediately at $103.00 would need the price to rise before they could sell near the same value. A seller who exits immediately at $100.00 accepts a lower price than the displayed ask.
Wide spreads are more common in smaller tokens, newly listed assets, markets with lower trading volume, and periods of stress or rapid price movement.
How Spread Affects Your Trades
The spread is especially important when using market orders.
A market buy order typically fills against available asks. A market sell order typically fills against available bids. This means a buyer starts on one side of the spread and a seller exits on the other side.
If the spread is narrow, the difference may be small. If the spread is wide, the cost can be more noticeable.
Consider an example where the highest bid is $50 and the lowest ask is $55. If you buy immediately at $55 and decide to sell immediately moments later, you may receive only around $50 before fees. The asset itself may not have changed in value, but you have crossed the spread twice.
This is why the last traded price can sometimes be misleading. The last price may show where the most recent transaction happened, but it does not tell you the exact price at which you can buy or sell right now.
Before submitting an order, it is useful to check both sides of the market.
Spread, Fees, and Slippage Are Different
These three concepts are related but not identical.
The bid-ask spread is the difference between the best current buying and selling prices.
Trading fees are charges applied by the exchange for executing an order. These may be shown as maker or taker fees, depending on whether the order adds liquidity or removes liquidity.
Slippage is the difference between the expected execution price and the actual average execution price. It can happen when an order is large enough to fill across multiple levels of the order book.
A trade can involve all three costs. For example, you may cross a wide spread with a market order, pay a taker fee, and experience slippage because the order consumes several available offers.
Understanding these differences helps users evaluate the total cost of a transaction more accurately.
Why Spreads Can Change Quickly
Bid-ask spreads are dynamic. They can widen or narrow throughout the day.
Spreads may widen when:
- Trading activity decreases
- Market volatility increases
- Important news creates uncertainty
- Liquidity providers reduce their orders
- A large price move occurs
- An exchange experiences technical issues
- The trading pair has low overall interest
Spreads may narrow when:
- More market participants are active
- Trading volume increases
- Liquidity providers place more orders
- Market conditions are stable
- The asset is traded across several active venues
A spread that looks acceptable during a quiet period may widen significantly during a sudden market move. This is one reason it is important to review live order-book conditions instead of relying only on a previous screenshot or a displayed reference price.
Using Limit Orders to Manage Spread Risk
Limit orders can help users control the price they accept.
If the current ask price is higher than you are comfortable paying, you can place a limit buy order at a lower level. Your order will only execute if a seller is willing to accept that price.
If the current bid price is lower than you are comfortable accepting, you can place a limit sell order at a higher level.
A limit order does not remove all risk. It may not fill, especially if the market moves away from your selected price. But it can prevent a market order from executing at an unexpectedly unfavorable level.
For users trading less liquid assets, limit orders can be particularly valuable because spreads may be wider and order-book depth may be limited.
A Simple Spread Review Checklist
Before placing a trade, check the following:
- What is the best bid?
- What is the best ask?
- How wide is the difference?
- Is the spread normal for this asset and exchange?
- Is there enough order-book depth for the size you plan to trade?
- Will a market order cross several price levels?
- Would a limit order provide better price control?
This short review can help prevent avoidable execution surprises.
Final Thoughts
The bid-ask spread is a basic but important part of every market. It shows the difference between what buyers are offering and what sellers are asking. A narrow spread often indicates stronger liquidity, while a wide spread can signal higher trading costs or less active conditions.
For crypto users, the spread is especially relevant when using market orders or trading smaller assets. Checking the bid and ask before placing an order can provide a clearer picture of the real transaction cost than looking only at the displayed last price.
By understanding spreads, fees, liquidity, and slippage together, users can approach crypto trading tools with greater awareness and better execution discipline.
This article is for informational and educational purposes only and should not be considered financial, investment, legal, or tax advice.