What Is a Bid-Offer Spread and Why Is It Important?
The bid-offer spread, also known as the ask-bid spread, is 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 offer or ask). It represents the market maker's potential profit or the cost of immediate execution for a trader.
A narrow spread indicates high liquidity and lower transaction costs, while a wide spread suggests lower liquidity and higher costs. It is crucial for assessing market efficiency and trading costs in assets like crypto or options.
Glossar
Market Efficiency
Arbitrage ⎊ Market efficiency, within cryptocurrency and derivatives, reflects the speed at which mispricing is exploited, diminishing opportunities for risk-free profit.
High Liquidity
Condition ⎊ High Liquidity in a derivatives market signifies the presence of substantial depth across the bid and ask sides of the order book, allowing for the execution of large notional trades with minimal price disturbance.
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.