Spread and Slippage: Understanding the Hidden Costs of Cryptocurrency Trading

Introduction: Why do we need to know about bid-ask?

When you are buying and selling digital assets at the same time, the market price is only part of the equation. Beyond the displayed price, we encounter several important variables: trading volume, liquidity availability, and types of orders placed. In practice, it is rare to receive exactly the price we saw on the screen at the moment of confirming the transaction.

The continuous negotiations between buyers and sellers create a certain gap – this is the bid-ask spread. When you trade larger quantities or opt for more volatile assets, you may encounter the phenomenon of slippage (slippage). To avoid unexpected surprises, it is worth familiarizing yourself with how the order book operates and the actual costs of trading.

Market Liquidity: The Foundation of the Bid-Ask Spread

On each trading platform, assets are bought and sold at prices determined by supply and demand. The concept of liquidity plays a key role – it tells us how easily we can enter or exit positions without significantly impacting the valuation.

When an asset enjoys high liquidity, we observe many buy and sell orders spread around the current market price. Conversely, low liquidity assets exhibit a sparse order book, leading to larger deviations between the buy price and the sell price.

This is how the bid-ask spread works. It represents the distance between the highest price that a buyer is willing to pay (bid) and the lowest price that a seller wants to exit at (ask). If you want to buy quickly, you must accept the seller's offer (ask). If you urgently need to sell, you will receive a price from a willing buyer (bid).

Spread Mechanism: Who Creates Price Differences?

In traditional financial markets, institutions known as market makers guarantee liquidity by maintaining both bid and ask sides for a given asset. In the cryptocurrency market, the spread arises directly from limit orders placed by market participants.

Market makers – whether on traditional exchanges or in more advanced digital trading ecosystems – profit from the spread itself. For example: if a market maker simultaneously offers to buy BNB at 800 USD per unit and sell the same asset at 801 USD, the spread point of 1 USD represents a potential arbitrage profit for them.

As trading volume increases, the market maker replicating this operation gains significant amounts. By repeating transactions in large volumes throughout the day – buying low and selling high – the market maker generates a steady stream of income.

Highly sought-after assets narrow spreads as many market makers compete to take on more orders. This naturally impacts the narrowing of the bid-ask spread.

Measuring the spread point: Percentage vs absolute value

To compare spreads between different cryptocurrencies or assets, we should assess them in percentage terms rather than absolute values.

The pattern is simple: ((Ask Price - Bid Price) / Ask Price) × 100 = Bid-Ask Spread Percentage

Let's take the example of a less popular speculative token ( at an ask price of 9.44 USD and a bid price of 9.43 USD ). The difference is 0.01 USD. Dividing this by the ask price ( 9.44 USD ) and multiplying by 100, we get a spread of approximately 0.106%.

Let's compare this to Bitcoin. Even if the absolute spread is 1 USD, at a price of around 118,400 USD, the percentage spread is only 0.000844%. This shows that Bitcoin, due to its immense liquidity, has a practically negligible spread point.

This simple calculation reveals the truth: less popular and harder-to-sell assets exhibit significantly wider percentage spreads. If you plan to execute large orders, analyzing the bid-ask percentage spread is an essential step in your planning.

Slippage: When the actual price does not match expectations

Slippage ( is a phenomenon that occurs when a transaction is ultimately executed at a different price than we planned. It particularly occurs in unstable or illiquid markets.

) How does a slip occur?

Let's assume you want to place a large market order to buy for $100. The order book does not have enough volume at that exact price. The exchange must therefore accept the next available sell orders that lie above. By continuing to move up the order book, you execute your entire operation, but the average purchase price ultimately amounted to $105 instead of the planned $100 – that is slippage.

In practice, the system automatically matches your operation by taking the best available prices from the order book. However, when there is not enough volume on the first line of defense, the system must dig deeper, and you end up paying a worse price.

Positive slip – rare, but possible

It is worth remembering that slippage is not necessarily always negative. If the price drops while placing a buy order, or rises while selling, you may observe positive slippage. In very volatile markets, such situations, although rare, do indeed occur.

Setting slip tolerance

Many platforms allow for manual specification of slippage tolerance levels. This option informs the system: “I agree to have the price differ from my expected valuation by a maximum of X%”. You can find it particularly in systems with decentralized market makers.

However, a trap arises here: too low a tolerance may cause the order to never be executed. Too high a tolerance, on the other hand, makes you vulnerable to front-running – another trader ### or bot ( sees your pending order, sets a higher network fee than you, buys the assets, and then sells them to you at the edge of your tolerance, making a profit at your expense.

Strategies for Minimizing Negative Slippage

Although you can't always completely avoid a slip, there are proven approaches that reduce its impact:

) 1. Fragmentation of large orders

Instead of placing a huge order all at once, break it down into several smaller parts. Monitor the order book and ensure that each individual order does not exceed the available volume at that price level. This approach alleviates your confusion in the market.

2. Consideration of actual network fees

If you are using a decentralized platform, keep in mind that networks may impose significant transaction fees, especially during periods of high traffic. Sometimes these fees can exceed the profits you were counting on achieving. Always calculate the total cost of the operation.

3. Betting on assets with above liquidity

If you can choose, trade assets that have good liquidity. Avoid small, lesser-known tokens or those with limited trading pools – your activity can drastically affect their valuation.

4. Prefer limit orders over market orders.

Limit orders are executed only at your desired price or better. They may take longer to fulfill, but they provide a reliable mechanism to protect against slippage. This approach requires patience but eliminates the risk of negative surprises.

Summary: Actual Trading Costs

When trading cryptocurrencies, the bid-ask spread and slippage can significantly affect the final execution price of your trades. No matter how hard you try, you may not be able to completely avoid them under certain market conditions.

For small transactions, the impact is usually negligible. However, in the case of large operations, the average price per unit can significantly deviate from initial expectations. This cumulative effect can easily be overlooked during planning, but its impact on profitability is real.

For anyone stepping into the world of decentralized finance, understanding the mechanics of slippage and spread is a fundamental element of a trader's education. Lacking this knowledge exposes you to serious losses – both due to front-running and uncontrolled slippage on poorly liquid assets.