Does the Bid-Offer Spread Change Depending on Market Volatility?
Yes, the bid-offer spread typically widens during periods of high market volatility. Increased uncertainty about future price movements heightens the risk for market makers.
To compensate for this greater risk, they increase the difference between the price they are willing to buy (bid) and the price they are willing to sell (ask). This widening spread essentially increases the transaction cost for traders.
A narrower spread, conversely, signals a more liquid and stable market.
Glossar
Market Makers
Function ⎊ Market Makers in cryptocurrency, options, and derivatives markets actively provide liquidity by simultaneously offering to buy and sell assets, narrowing bid-ask spreads and facilitating efficient price discovery.
Bid-Offer Spread Impact
CostMetric ⎊ Bid-Offer Spread Impact quantifies the immediate, non-recoverable cost associated with executing an order by crossing the prevailing quoted spread, representing the premium paid for immediacy over passive price waiting.