What is spread?

The difference between the price at which you can buy an asset and the price at which you can sell it at the same moment.

Spread is a hidden cost on top of stated fees, especially on broker platforms, and is wider for low-liquidity assets.

It is the most commonly overlooked line in the cost of a purchase, because no exchange itemizes it. You pay it by buying at the ask and being able to sell only at the bid, and the money goes to whoever was resting on the other side.

How it works

An order book has a highest bid, which is the best price anyone will pay right now, and a lowest ask, which is the best price anyone will sell at. The gap between them is the spread, and the midpoint is the reference price most quotes are built from. See bid ask.

Spread is usually quoted in basis points, hundredths of a percent, so a spread of 10 basis points is 0.10% of the mid price.

Three things widen it. Thin markets, where few participants are willing to quote. Volatility, because a market maker facing uncertain prices demands more compensation for standing still. And venue structure: a broker that quotes you a single price rather than showing a book is embedding its margin in that quote, and the embedded amount is often several times a trading fee.

The important consequence is that spread is a round-trip cost you pay half of on entry. Buying at the ask and immediately selling at the bid loses the whole spread even with zero fees, which is why a platform advertising "no fees" can still be the most expensive place to trade.

RampAtlas measures this directly rather than accepting published figures, reading each venue's own order book and recording the spread in basis points alongside the depth resting within one percent of the mid.

Example

Illustrative book. The bid is $99.90 and the ask is $100.10, so the mid is $100.00 and the spread is $0.20, or 20 basis points. You buy $500 at the ask. If you sold immediately at the bid, you would receive about $499.00, so the spread cost you roughly $1.00 on the round trip, and about $0.50 on entry alone.

Now compare a "zero fee" broker quoting a single buy price of $100.60 against the same $100.00 mid. That is 60 basis points, three times the exchange spread, and it is invisible because nothing on the screen is labeled a fee. A venue charging 0.25% on top of a 20 basis point spread is cheaper.

Why it matters when you buy

Spread and trading fees have to be read together, because a low headline fee with a wide spread beats nothing. The liquidity pages show the spread RampAtlas measured for each asset on each venue, and the fee comparison combines the trading fee, the deposit fee, and the spread into one estimate for a $500 purchase. The spread and slippage guide works through the arithmetic.

Related terms

• bid ask — the two prices the gap sits between
• liquidity — what determines how wide it gets
• market depth — the size available near the price
• broker — the venue type where it is usually widest
• maker taker fee — the stated cost paid alongside it
• instant buy — the interface that hides it most completely

Questions

Is the spread a fee?

Not formally, and that is why it goes unnoticed. Nobody charges it and it appears on no statement. You pay it by transacting at the worse of the two available prices.

Which assets have the widest spreads?

Smaller assets on smaller venues, and any asset during a fast move. The measured figures for tracked assets are on the liquidity pages.

Does a limit order avoid it?

A resting limit order on the passive side can earn the spread rather than pay it, at the cost of not filling if the market moves away. That is the trade a maker accepts. See maker taker fee.