What Is the Bid-Ask Spread? Definition & Example

The bid-ask spread is the difference between the best bid (highest price anyone is currently willing to pay) and the best ask (lowest price anyone is willing to sell at). It is the most direct measure of a market's liquidity, and it is a real cost you pay on every round trip whether or not you notice it.

The cost is immediate and unavoidable with market orders. Buy at the ask and sell at the bid and you have paid the full spread — before any exchange fee. On BTC the spread is typically a fraction of a basis point and effectively irrelevant. On a thinly traded altcoin it can be 1% or more, which means you start every trade 1% underwater and need that much movement just to reach break-even.

Spread width reflects market maker confidence. Tight spreads mean makers are comfortable quoting close to each other because volume is high and volatility is manageable. Wide spreads mean the opposite — thin volume, high uncertainty, or both — and they widen sharply during volatility events precisely when you are most likely to want out.

Two practical consequences. First, spread cost scales with how often you trade: a strategy turning over its position several times a day pays it several times a day, and on a wide-spread asset that alone can exceed the strategy's edge. Second, limit orders let you sit on the favourable side of the spread rather than crossing it — you earn the spread instead of paying it, at the cost of uncertain fills.

Before trading an unfamiliar market, check the spread as a percentage of price, not in absolute terms. A $5 spread means nothing until you know whether the asset trades at $50 or $50,000.