Spread is the difference between demand and supply in financial markets.

Let’s understand what a spread is and why it’s important for every trader to understand this mechanism. Essentially, the spread is the distance between the highest price buyers are willing to pay and the lowest price sellers are willing to accept for an asset.

How the spread forms in the market

Imagine a real market situation: two sides meet on a trading platform. One says, “I’ll buy this for 90 rubles!” (this is called the bid). The other responds, “I’ll sell for 100 rubles!” (this is called the ask). The 10-ruble gap between these two levels is the spread.

The situation is similar in the cryptocurrency market. For example, on an exchange, buy orders might be willing to purchase BTC at $43,200, while sell orders set the price at $43,210. In this case, the spread is $10.

Why the size of the spread affects asset liquidity

A small spread indicates a healthy market condition. The narrower the gap between buying and selling prices, the more active the trading, and the faster you can execute an order at a fair price. Such assets are called liquid — they are easy to buy or sell.

A wide spread signals the opposite — the asset has few participants and low trading activity. Trying to quickly sell or buy can lead to significant losses. Volatility can occur during these times, with prices making unexpected jumps.

Spread in different segments of financial markets

Spreads are everywhere where prices are formed. On stock exchanges, where shares are traded, spreads depend on the company’s popularity — the more well-known the company, the lower the spread. On currency markets, spreads are minimal because trading volumes are huge.

In the cryptocurrency space, spreads range from a few cents for popular coins (like XRP and ORDI) to several percent for new or less active tokens. On exchange platforms, market makers earn precisely on the spread — the difference between the buy and sell rates is their fee and source of profit.

Understanding what a spread is is key to more effective trading and minimizing costs in financial markets.