Why the Bid-Ask spread is a hidden cost of trading on cryptocurrency exchanges

When you make a trade on a cryptocurrency exchange, you rarely get the fair market price immediately. There is always a gap between the price you’re willing to buy an asset at and the price sellers are offering. This gap is what professionals call the Bid-Ask spread — one of the most underestimated components of traders’ costs.

How the mechanism of the difference between buy and sell prices works

On any crypto exchange order book, you’ll encounter two price levels. On one side is the highest price buyers are willing to pay (bid), and on the other side is the lowest price sellers are offering (ask). They never fully match. For example, if the best bid is $22,346 USD, the best ask might be $22,347 USD. This one-dollar difference forms the Bid-Ask spread.

What controls the size of this gap? Primarily — trading volume and the number of participants. When the market is highly active with many competing traders, the spread narrows to a minimum. Conversely, during periods when liquidity dries up or uncertainty increases, the difference between buy and sell prices can widen several times. Markets with chaotic behavior show higher spreads precisely because sellers become more cautious, and there are fewer buyers.

How to independently calculate the spread between buy and sell

The calculation is straightforward. You need to find the best ask price in the order book and subtract the best bid price from it. The result will be the Bid-Ask spread.

Let’s take Ethereum as an example. Suppose the highest bid is $1570 USD, and the lowest ask is $1570.50 USD. The Bid-Ask spread in this case is 50 cents. On larger trading volumes, such gaps become even narrower, while on low-liquidity trading pairs, they can widen significantly.

Why this spread greatly affects profitability

It may seem that half a dollar or a few cents is trivial, but there’s a mathematical trap for frequent traders here. Every time you open a position, you immediately lose the size of this spread. You buy at a higher price (ask), and sell at a lower (bid), than you’d like.

Let’s analyze a specific scenario. Suppose you’re trading an ABC token with a fair market price of $0.35, and the Bid-Ask spread is $0.02. When you buy, the best ask price is $0.36. The best bid at that moment is $0.34 (maximum buy price).

What does this mean? To break even, the price must rise by exactly $0.02, or about 5.7%. This isn’t profit — it’s just covering the costs of the spread. Imagine you make 10 such trades in a day. Each trade takes away a few percent of your potential income. Over a month, these small losses add up to a noticeable decrease in overall profitability.

How different market conditions influence the size of the spread

On crypto exchanges, the spread entirely depends on the dynamics of supply and demand. High competition among participants leads to narrow spreads, while low liquidity causes the gap to widen. This becomes especially critical during volatile periods when the market moves unpredictably and participants become more cautious.

Any professional trader will tell you: the Bid-Ask spread is not just a technical feature; it is the real cost of entering and exiting a position. Over the long term, these microscopic losses accumulate into a significant amount, and in scalping and day trading, they become the main enemy of profitability.