How Do Wider Bid-Ask Spreads Affect the Execution Price for Retail Traders?
Wider bid-ask spreads directly result in worse execution prices for retail traders. The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).
When this spread widens due to market maker withdrawal or uncertainty, a retail trader buying (at the ask) or selling (at the bid) pays a higher implicit transaction cost, known as slippage. This increased cost reduces the trader's effective profit margin and makes small positions less viable.
Glossar
Retail
Participation ⎊ Retail refers to individual investors and traders engaging directly with cryptocurrency markets.
Market Maker Withdrawal
Withdrawal ⎊ A market maker withdrawal, within cryptocurrency derivatives and options trading, represents the removal of liquidity provision by a market maker from an exchange or trading platform.
Spreads
Volatility ⎊ In cryptocurrency derivatives, spreads represent the difference between bid and ask prices, reflecting immediate market liquidity and the cost of transacting.
Bid-Ask Spreads
Spread ⎊ The bid-ask spread represents the difference between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is willing to accept (the ask) for a given cryptocurrency derivative, option, or financial instrument.
Retail Trader
Participant ⎊ A retail trader is an individual investor who buys and sells securities, cryptocurrencies, or derivatives for their personal account, rather than on behalf of an institution.
Wide Bid-Ask Spreads
Spread ⎊ Wide bid-ask spreads in cryptocurrency derivatives signify a substantial differential between the highest price a buyer is willing to pay (the bid) and the lowest price a seller is prepared to accept (the ask).