Spread is the difference between what people are willing to pay for an asset and what they're willing to sell it for. It's the gap between the prince at which you wish can buy and the price at which you can sell an assets.
Cryptocurrency Spreads are the difference between the purchase price and the sale price of a given pair. A large spread point results in an increased number of transactions with a certain amount of cryptocurrency, which negatively affects its liquidity. The main reason for cross-rates volatility is that there are many traders on one market influencing it with their orders simultaneously.
WHY IS MARKET SPREAD IMPORTANT WHEN BUYING AND SELLING CRYPTOCURRENCY ?
When buying and selling cryptocurrency, it is important to understand the
market spread. The market spread is the difference between the buying and
selling prices of a security or asset. This different can have a significant
impact on the profitability of a trade.
For example, If an investor buys 1 bitcoin for $10,000 on the exchange and
sells it for $10,500, the market spread is 5%. This means that the trader will
a profit of only $500.
However, if the trader buys 1 bitcoin for $10,000 on the exchange and sells it
for $9,000, the market spread is 10%. This means that the trader will make a
loss of $1,000.
So, you need to find the best market spread for your trade. You can do this by
comparing multiple exchange or markets that list the same asset pairs.
WHAT DOES SPREAD IN CRYPTOCURRENCY TRADING SIGNIFY?
A spread signifies the difference between the highest price a buyer is willing
to pay for an asset and the lowest price a seller is willing to sell it for.
Fundamentally, a large spread signifies that the current perceived value of
the market is very low, and there is no big demand for the token.
A larger spread will indicate a volatile market where the coin is in demand by
traders, the Bigger the spread, the higher the volatility of the token.
A spread that is too small will indicate the there are just too many trades
happening at one time, which can also mean that there could be an imbalance in
the market.
A spread of 0, consequently, means that the buy and sell price matches, so it
means the token is not being traded at all.
Different cryptocurrency have different spreads, depending on the market
demand and supply. When you trade coins at one exchange with very high spread,
you'll find these coins will be cheaper at another exchange with lower spread
making way arbitrage opportunities.
WHAT AFFECTS THE SPREAD OF CRYPTOCURRENCY?
The main factors that affect cross rates volatility are the result of multiple
players on one market influencing it with their orders simultaneously: Big buy
sell walls influence the price greatly and leave a big footprint on the
charts. There's not much you can do about it, but to find markets with low
spreads.
HOW DOES SPREAD TRADING WORKS?
The following three price are the most significant in an order book:
1. The highest bid price
2. Lowest sale price
3. The last price traded
- The highest bid price is the price at which somebody is willing to buy a cryptocurrency.
- The lowest sale price is the price at which somebody is willing to sell a cryptocurrency.
- The last price traded refers to the volume of a digital currency that was sold or bought in a particular transaction.
Therefore, the spread point is $1050-$1000=50
7 FACTORS THAT DETERMINE A SPREAD
- Market Depth: If there many buy or sell orders on the market, It will be either increased or decreased by traders. A large number of trades would cause a difference in price.
- Currency Availability: If the coin is not available on that top exchanges, then there is a higher chance of the spread being bigger.
- Market Manipulation: A sudden surge of buy or sell orders can cause an increase in volatility and fluctuations in price.
- Limited Coin Supply: A limited number of coins or tokens affect the market spread due to the fact that there is a limited number of coins available.
- The volatility of the coin: The higher the volatility of the coin, the bigger the spread.
- Liquidity: A higher volume of trade will increase the liquidity and also reduce the volatility. The more liquid a cryptocurrency, the smaller the spread.
- Market Sentiment: If traders are excited or worried about cryptocurrency news, they will either but or sell increasing volatility of the market making the spread wider.
- Big Players: The whales of the market can dump a coin in a matter of seconds, or buy it all up making the spread bigger and increasing volatility.
- You can avoid losing all your money in a single transaction.
- You may make more transactions without spending large amounts of money on commission fees, inter-exchange commissions and etc.
- If you are using one exchange only, the spread point will show you if this particular exchange is making its rates artificially high or low. The smaller the spread, the more competitive this exchange is.
- If you are using multiple exchanges, it will allow you to compare prices and identify arbitrage opportunities.
- By analyzing spreads of different exchanges, you can make conclusions about the state of the cryptocurrency market in general. The lower the spread points are, the higher liquidity there is on a market.
FAQ
WHAT DOES A HIGH SPREAD MEAN?
The higher the spread, the lower liquidity there is on a market. In other
words, it means that this particular cryptocurrency is traded at overpriced
rates on the particular exchange.
WHAT DOES A LOW SPREAD MEAN?
The lower the spread, the higher liquidity there is on a market. In other
words, it means that this particular cryptocurrency is traded at competitive
rates on that particular exchange.
WHAT IS SPREAD TRADING?
Spread trading refers to buying and selling cryptocurrency at various
exchanges, with a small difference between prices. it's done to make profit
from price fluctuation of certain cryptocurrency pairs.
WHAT IS ARBITRAGE?
Arbitrage describes the act of buying a security in one market and
simultaneously selling it in another market at a higher price, thereby
enabling investors to profit from the temporary difference in cost per share.
In the stock market, traders exploit arbitrage opportunities by purchasing a
stock on a foreign exchange rate, which is in a constant state of flux. The
price of the stock on the foreign exchange, positioning the trader to harvest
gains from this differential. Although this may seem like a complicated
transaction to the untrained eye, arbitrage trades are actually quite
straightforward and are thus considered low-tisk.