TradingBeginner#Market Microstructure#Beginner
Bid-Ask Spread
B
Definition
The difference between the best displayed bid and best displayed ask on a specified venue and moment. It is one execution-quality measure, not a complete trading cost, universal liquidity rating, or guaranteed fill price.
Source reviewed
- CFTC: Liquidity in Select Futures Markets opens in a new tab
Supports: Distinguishes quoted bid-ask spreads, order-book depth, order size, and execution-cost considerations; its analysis is specific to the studied public data feeds and futures products.
- SEC Investor Bulletin: Trading Basics opens in a new tab
Supports: Explains that market-order price is not guaranteed and that a limit order can constrain price but is not guaranteed to execute.
Concept Diagram
Key Takeaways
1
The quoted spread is the best displayed bid-ask gap for one venue and time, not a complete cost or fill guarantee
2
Actual execution can differ because size, available levels, routing, latency, fees, and quotes can change
3
A narrow spread does not prove deep liquidity, low slippage, fair routing, or an easy exit
4
Evaluate order-book and automated-market-maker execution using their own venue and mechanism rules
Practical Example
A venue displays a $4 best bid-ask spread for BTC/USD. A user considering a larger immediate order checks the quantity at each level, order preview, fees, and current quote before submitting. The $4 top-of-book difference is not used as a promise that the whole order will fill at those two prices or as a complete cost calculation.
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Related Terms
Blockchain
Liquidity PoolAssets supplied to a smart-contract market-making system so swaps can execute against its rules instead of a traditional order book. The assets, fees, price curve, liquidity shares, withdrawal conditions, and risks depend on the specific pool and protocol.
Trading
SlippageThe difference between a quoted or expected trade result and the result that can execute under the protocol's state and limits.
Trading
Order Book DepthThe displayed quantity of resting bids and offers at selected price levels on one venue or data feed. It is a time-specific view of stated trading interest, not a guarantee of executable liquidity, future price, or participant intent.
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