If you look at the order book, you’ll see that the highest buy order price and lowest sell order price are not the same and there is a gap between them. In the example below, it is $0.1.
This difference is called the bid-ask spread. It can be created by the difference between the prices of buyers’ and sellers’ limit orders.
There are two major types of spreads — fixed and variable (floating). And the CEX.IO Exchange uses a floating spread for trading.
As the name suggests, floating spread implies that the difference between the bid and ask prices of currency pairs is always changing. CEX.IO Exchange gets pricing from multiple liquidity providers, including users’ orders, and passes these orders without the intervention. It means crypto price spreads may widen or tighten based on the market liquidity and activity.
In most cases, spreads widen when the liquidity and market activity decreases or when either buyers or sellers dominate the market. For instance, there can be too many buy orders and much less sell orders, forming a wide spread. On the other hand, spreads tighten when there is high interest in the market and some balance between buyers and sellers.
One of the main advantages of variable spreads is the elimination of requotes, meaning requested prices can’t be blocked and traders can’t be forced to accept new prices. But the elimination of requotes doesn’t mean that there is no chance to experience slippage. So if your buy or sell order is bigger than the total amount in the highest bid or lowest ask, then the order may be filled by the next order with another price.
Variable spreads make pricing on CEX.IO transparent because it forms due to competition by buyers and sellers.
For experienced users, market spreads, especially floating, can open a lot of arbitrage opportunities.