What Is Spread and Why It Matters in Arbitrage
Spread is one of the market's invisible costs. If you focus only on exchange fees, you forget that the gap between the buy price and the sell price also eats into your gain, especially in arbitrage trades.
Spread within a single exchange
Every coin has a price at which someone wants to buy (bid) and a price at which someone wants to sell (ask). The difference between them is the spread. On heavily traded coins it is tiny. On small coins, it can be large.
If you buy at the ask and sell right away at the bid, you lose the spread. So entering and exiting a position has an implicit cost, on top of the fees.
Spread between two exchanges
In arbitrage, what matters is the price difference between the exchange where you buy and the one where you sell. This cross-exchange spread changes every instant, and how it moves between entry and exit can help or hurt the result.
In Multi Arbitrage, the cards show the entry spread and the exit spread, and the potential profit already accounts for those values. See also how to calculate funding profit.
How spread affects the result
- Coins with a high spread need a higher funding rate to make up for it.
- A very negative entry spread can make the trade unviable right from the start.
- The exit spread can be better or worse than the entry spread, and that difference counts toward the final result.
- Large orders on a low-volume coin move the price and raise the cost.
Spread isn't only a cost: the difference between the entry spread and the exit spread can be a profit or a loss, which is why it has to be calculated before entering.
How to reduce the impact
- Trade coins with good volume on both exchanges.
- Use orders that control the price, such as IOC orders with a slippage cap.
- Split the entry into slices when the amount is large.
- Check the spread before entering, not after.
An example of spread between exchanges
A coin has a buy price of $1.0000 on exchange A and a sell price of $1.0020 on B. If you buy on A and sell on B, the entry spread is 0.20% in your favor. By the time you exit, prices have changed: buying on B costs $1.0015 and selling on A earns $1.0005. The exit costs 0.10%. The net effect of the spread is +0.10%, before fees and funding.
When ignoring the spread goes wrong
On low-volume coins, the spread can be 1% or more. A funding trade at 0.05% per payment would take twenty payments just to make up for a 1% spread. That's why spread and volume are part of the Prospector filter.
Related guide: making money with crypto without predicting the price. See also all the crypto arbitrage guides.
Frequently asked questions
Are spread and fees the same thing?
No. The fee is charged by the exchange. The spread is the difference between the buy and sell prices, and it lives in the market.
Is a negative spread always bad?
It depends. What matters is the sum of the entry and exit spread, together with the funding received and the fees.
How can I know the spread before entering?
Look at the order book on both exchanges or use the dashboard cards, which show the entry and exit spread.
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This content is for information only and is not investment advice. Trading crypto derivatives involves a high risk, including the total loss of your capital. Past results do not guarantee future results, and the figures mentioned are examples. Before trading, check whether trading crypto derivatives is allowed in your country and what your tax obligations are. Assess whether the product suits your profile before investing.