Bid-Ask Spread

The bid-ask spread is the difference between the lowest asking price (for a sale order) and the highest bid price (for a buy order). Basically, there are two possible approaches to producing the bid-ask spread. A broker (or trading middleman) can establish it first as a means of generating income for their service. Second, it can be created by simply changing the limit orders that traders place in an open market. A common strategy for making money from trading activities in traditional markets is the bid-ask spread. For instance, a number of brokers and trading platforms offer commission-free services with only the bid-ask spread serving as a source of income. This is possible because they provide the market with liquidity, which necessitates that sellers and buyers consent to the broker's predetermined price. If not, they are unable to compete in that market. They effectively determine the difference between selling and purchasing prices and profit from it by buying from sellers at a lower price and selling to buyers at a higher price. On exchanges, where the user (trader) buying and selling orders are directly entered into the order book, the majority of crypto trading operations are conducted. In this case, trading fees are the only source of revenue for the exchange; the spread is nonexistent. Spreads are often narrower in high-volume markets because of the higher liquidity (more competition between buyers and sellers) present in these markets. On the other hand, spreads are often greater in markets with limited trading activity and low liquidity.