How the bid-ask spread is measured
If the best bid for an asset is 99.95 and the best ask is 100.05, the spread is 0.10. Divided by the mid price of 100.00, that is 0.10%, or 10 basis points, the form in which spreads are compared across assets.
The quoted spread applies only to the quantity resting at the best prices. A larger order eats into deeper levels of the order book, so its effective spread is wider, and the extra cost is slippage.
What sets the width of a bid-ask spread
- Liquidity: more competing orders, tighter spread
- Volatility: market makers widen their quotes when prices move fast
- Tick size: the smallest price step a venue allows is the floor
- Time: spreads widen in quiet hours and around news
Who earns the spread, and why it matters
Market makers earn it by buying at the bid and selling at the ask, as pay for carrying inventory and risk. On an exchange, the spread is a headline measure of market quality, shown beside the trading fee.
Brokers, on-ramps and OTC desks quote one price to buy and another to sell, and the gap is their margin on top of what the hedge costs. A product that advertises no commission usually earns its income there.
Spread, trading fee or slippage?
- Trading fee
- Charged by the venue on each trade, on top of the spread.
- Slippage
- The difference between the expected price and the price actually filled, caused by the order's size or a moving market.
- Mark-up
- A margin that a broker or an on-ramp adds to the market price, often folded into the spread it quotes.
Where the bid-ask spread shows up in a platform
Modules that do the work
- Matching engineA low-latency order book for spot markets, with market makers and outside liquidity.
- Market dataLive and historical prices for crypto, stocks and FX, from the data vendors you choose.
- FXCurrency conversion with live rates, your margins and the liquidity provider you choose.