What is spread?

The spread is the difference between supply and demand in the global market. It is determined by the traders on the market. Buyers decide at what price they would like to buy crypto (bid price) and sellers decide on their ask price. Traders setting their prices will cause market forces and price fluctuations. The difference between the bid- and ask prices create a gap: the spread. 


What causes a large spread?

For healthy markets and crypto's with high trading volumes, the spread is small, often even negligible. Some crypto's, however, can have a large spread. This is usually caused by small trading volumes or big "leaps" to the next price point or a combination of the two. 

Before we get into that, you should know that the prices you see and pay are usually displayed in Euros. However, on the back end, LiteBit will exchange your euros for Bitcoin (BTC) and buys the altcoin you ordered with that BTC. Bitcoin is divided into Satoshi: 1 BTC equals 100.000.000 Satoshi. Just like 1 Euro is made up of 100 Eurocents. 


Low trading volumes and the order book 

The first possible cause for a large spread is through small trading volumes and has to do with the order book. The order book is an overview of all the bid and ask prices at that time. These bid and ask prices are matched together so that the actual transactions are executed. 

For crypto with low trading volumes, the order book is small: there are not many people at that exact moment who want to sell or buy. Because of this, the price per coin within 1 order can vary. Suppose you want to buy 80 coins. Perhaps the first 10 coins have a price of €0.10 per coin, and the remaining 70 coins are prized €0.15 per coin: not your whole order will be executed for the same price. Is the order book actually empty because only 50 coins were offered for sale, and you wanted to buy 80? Then this can temporarily cause a huge spread: because more demand than supply causes a price increase, just like with the "regular economy". As a result, the actual costs of your purchase may be higher than you thought beforehand.


Big leaps will cause large spreads 

As mentioned, altcoins are paid for (by LiteBit, on the back end) in Satoshi. For this example, we assume a price of €40,000 per Bitcoin, which means a Satoshi would be worth €0.0004. 

Suppose you want to buy a cryptocurrency priced at €1.50 per coin; that's 3750 Satoshi. In the order book, the bid price for this example could be 3749 Satoshi with an ask price of 3750 Satoshi. The spread is then 1 Satoshi, or €0.0004. On the total amount of €1.50, that is a spread of less than 0.5%. 

A difference of 1 Satoshi on a coin that has a price of only €0.004 (e.g., smaller coins like ReddCoin) that's a 10% spread. It is impossible to buy in smaller steps than -in this example- €0.0004 because a Satoshi cannot be divided any further. If a "cheaper" coin has a price increase of 1 Satoshi during your order (perhaps partly due to the small size of the order book), the spread rises to a whopping 20%. That's a percentage you won't typically encounter in crypto with a higher price and/or higher trading volume.


Bridging the gap

In short, because of the spread, the prices you pay when buying or receive when selling crypto may differ from the amount you initially saw on your screen. For crypto with small trading volumes or low prices, the spread may be high. This spread is not a fee paid to LiteBit, but is paid to bridge the gap between the bid and ask price. 


Disclaimer: all calculations and prices in this article are fictitious and are for illustrative purposes only.