What Is Spread In Crypto And How Do They Work?

When you buy or sell a cryptocurrency, the Spread is the difference between the current market price and the price at which you purchased or sold the asset. Coinbase combines the spread in the price when you buy or sell cryptocurrencies or the exchange rate when you trade cryptocurrencies.

This allows us to temporarily set the transaction price while verifying details before submitting your transaction. 

Spreads are applied to the exchange rate when exchanging between two cryptocurrencies. When converting between two cryptocurrencies, the conversion is based on the exchange rate between the assets, not the monetary value. The market determines the exchange rate and is displayed on the confirmation screen before the conversion is confirmed.

What Is A Spread Fee In Cryptocurrency – Explained

The Spread cost is the difference between the price of the crypto and what you paid to buy it (or get it for sale). The spread is roughly 0.5% of your cryptocurrency sales and purchases but can be higher depending on your trading cryptocurrency.

The cryptocurrency fees on your spread vary by location, payment method, and other factors. However, crypto-to-crypto transactions (e.g., Bitcoin for Ethereum trading) do not incur fees. 

You also pay different prices, like using specific methods to fund your Coinbase portfolio or withdrawing your investments. The most popular fee schedule cryptocurrency exchanges use a tiered “creator” and “recipient” scheme. It uses trading volume to create levels and calculates producer and receiver fees based on your trading volume.

Producers create markets on exchanges by selling cryptocurrencies, and takers are countries that remove them from the market by buying them. Cryptocurrency exchange fee schedules are designed to encourage the frequent trading of large amounts of thousands of dollars in transactions. Prices often drop as a trader’s 30-day cumulative trading volume increases.

How Do You Calculate The Spread In Crypto?  

The lowest bitcoin seek price is $9745.01, and the highest bitcoin bid price is $9745.00. To calculate the crypto spread, we have to subtract the highest bid from the lowest bid.

AL – BH = spread

Where,

AL is the lowest search price

BH is the highest bid price

Spread = $9745.01 – $9745.00 = $0.01

In addition to the raw spread value, you may also want to know the spread percentage. The percentage spread can help determine market liquidity.

Distribution of Percent = (S/AL) x 100

Where,

S is distribution

AL is the lowest search price

Multiply by 100 to convert from decimal to percentage

Percent variation = (0.01 / 9745.01) x 100 = 0.0001%

The Importance Of The Spread

The spread is the difference between the highest price someone is willing to buy and the lowest price someone is willing to sell and must be factored into the direct commission charged for the transaction. This difference will be minimal when there is an efficient market – such as a prominent cryptocurrency – with many people looking to buy and sell the same amount.

This is the default price because you only feel the effect on the next transaction. After all, the cryptocurrency you buy has to rise above the spread level, not the price you purchased it for, to make a profit. As mentioned, spreads for heavily traded (liquid) cryptocurrencies are small – a fraction of a percent – ​​but wide for less-obvious coins, so that becomes relevant if you think you could hit a killer trade in the next month.

Why Are Crypto Spreads So high?

The bid-ask spread is the difference between the highest buy price and the lowest order book search price. In traditional markets, market makers or broker liquidity providers often create spreads. In the crypto market, the spread results from the difference between buyer and seller limit orders.

You must accept the lowest seller search price if you want to buy immediately at the market price. If you’re going to sell directly, you will receive the highest bid from the buyer. More liquid assets (such as Forex) have tighter bid-ask spreads, meaning buyers and sellers can fill their orders without any significant asset value change. 

What Is a Good Spread In Crypto?  

This may seem like a lot, but in relative terms, it accounted for more than 0.5% of the total value of Bitcoin at the time. In other words, Bitcoin needs to move (a little above) 0.5% in your favor to beat the spread and get your price traded profitably. Spreads are taken to cover the broker’s fees for executing orders. It’s worth all the brokers to trade on your behalf, not to mention the costs of developing the platform, paying employees, marketing, etc. A large amount of money is required to make the broker work, and this is partially covered by being funded by the spreads earned by the clients – the primary source of funding. 

How To Minimize Crypto Spread?  

Since fees vary widely, your timing and strategy in dealing and other transactions are critical. Here are some cryptocurrency miner tips:

1. Use exchanges with non-binding trades:

Binance, the investment app that helps make fee-free broker trading a common practice, recently launched fee-free cryptocurrency trading.

2. Buy cryptocurrency with coins:

If you liquidate your cryptocurrency in a government-backed fiat currency, you may be charged for the withdrawal and associated deposits to your digital wallet. On the other hand, using coins to trade will be accessible in most cases.

3. View transaction amount:

Many cryptocurrency exchanges charge a percentage of the amount traded, usually around 0.1% – meaning you can earn $1,000 on $10,000 trades.

Best Crypto Exchange In Australia With A Low Spread

Cryptocurrencies are growing in popularity in Australia, resulting in many exchanges to choose from. If you want to buy or sell cryptocurrency, you first need to select a legitimate platform and the best choice for you.

After extensive testing and research, Binance is the best cryptocurrency exchange for Australians to use. There is only a tiny 0.1% fee when trading with Binance, which is almost the lowest fee you can find on any trading platform globally. 

Not only are their costs already that low, but you can quickly get 25% off if you use their coin (BNB) to pay for trading fees. That means you only pay 0.075% per transaction! If you are a wholesaler, you can also get additional discounts based on the amount you traded in the last 30 days.

Withdrawing AUD from Binance Australia to your bank account is easy and free. The minimum withdrawal amount is $50, and transactions are processed instantly if your bank supports NPP/PayID. Otherwise, it may take 1-2 business days. 

Conclusion

Cryptocurrency traders need to pay special attention to market spread as this is an often overlooked trading issue and can provide an accurate picture of market liquidity. The effect of market spreads can be minimized by using limit orders or estimating spread percentages. Investors interested in digital currencies need to understand the potential pitfalls of a volatile market that operates 24/7. 

As a crypto trader, your next investment decision could theoretically be made at any time – and that in turn means you should keep your knowledge of fees up to date. Have a strategy for buying, selling, and storing cryptocurrencies, and review that strategy as often as possible as new developments will continue to emerge in the industry.