Market spread is the difference between the sell and buy price of the market. Analysing the market spread is important since it can help you find out if you can make a profit in crypto trading.
Before you start trading cryptocurrencies, you should research and find out how the market works. Keep reading to learn more about market spread in crypto…
What is the crypto market spread?
More and more people in Australia are trading cryptocurrency and now is a great time to jump in if you’re new to crypto trading. For you to benefit from cryptocurrency trading, you need to learn most of the fundamental concepts. One of them is the market spread.
This refers to the difference between the price at which traders are willing to purchase an asset and people willing to sell. It is an important aspect that most new crypto traders overlook and end up making losses. Understanding the market spread is important since you can start looking for ways to beat it and make a profit in crypto trading.
In cryptocurrency, the sale and purchase price have slight differences. A trading exchange has two sides, namely the sell side (ask) and the buy side (bid).
Exchanges like Swyftx give Australians a chance to sell and purchase digital currency. The difference between the purchase side and the sell side in this exchange platform is what makes the market spread.
Let’s take an example of you buying Bitcoin from a seller to make it easier to understand…
Example:
Suppose you want to buy Bitcoin at $5000, but someone who is selling is only willing to sell it at $7000. The difference between the person’s selling price and your buying price is what is referred to as the market spread.
If you are new to this kind of trading and are looking for an exchange platform that you can use to trade cryptocurrency, you should consider Swyftx. This is the main exchange platform that most investors in Australia use since it is secure and easy to use. At the moment they give you $20 worth of BTC free just for signing up (More details).
In the cryptocurrency exchange, the order book comprises numerous traders that are willing to buy an asset and others willing to sell an asset such as Bitcoin. The order book refers to the electronic list of sell and buy orders for an asset like cryptocurrency. It contains the buy and sell details from the top to the bottom part of the screen.
Swyftx makes use of combined order books and delivers the best crypto prices available on the market. This exchange keeps on updating the order books in real-time all through the day so that crypto traders can make more informed decisions after analysing the marker spread before trading.
If you have been looking for the best crypto exchange platform that you can use to start crypto trading in Australia, you should sign up with Swyftx.
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How to calculate the market spread in cryptocurrency
To calculate the market spread, you should take some time to analyse the asks and bids on the Swyftx exchange.
For instance, let’s say the lowest ask price for Bitcoin is $40,000, and the highest bid price is $35,000. You can calculate the market spread by subtracting the highest bid price from the lowest ask price.
($40,000 – $35,000= $5,000)
Once you get the market spread, you should proceed with calculating the percent spread. This is useful since it can help you assess the liquidity of the cryptocurrency market.
To calculate the percent spread, you need to divide the market spread with the lowest ask price then multiply by 100%. Let’s use the same example.
($5000/$40000) x100%=12.5%.
Note: The market spread is never zero or negative. When it comes to measuring currency pairs, a spread can also show the difference between exchange pairs.
The importance of market spread when selling and buying crypto
Understanding how to calculate the market spread is not enough. For you to succeed in crypto trading, you need to understand the importance of market spread since this can affect your trading strategy. This is most important when choosing a margin exchange to trade crypto with leverage.
The market spread is not only used to mark the price differences but it can also be used to analyse the market. This is a crucial concept that can determine whether you make profits or losses while trading cryptocurrency.
Crypto markets move based on demand and supply. The market spread is important since it measures the supply and demand of an asset.
In the crypto space, the demand and supply cycles differ. Large market spreads increase the chances of crypto traders losing money. This can happen if the asset price goes up.
On the other hand, a small market spread is better for a crypto trader since it can help one gain profits.
Suppose the highest bid offer for an asset such as Bitcoin is $6500, and the lowest ask offer is $6501, it means that the market spread is $1.
The percent spread, in this case, would be 0.015%. If the bid price rose by 1%, it would be easy to make a profit since the market spread is small. Every crypto trader should pay attention to the market spread to avoid losing money.
A small spread indicates liquidity, while a big spread, on the other hand, indicates an imbalance in the market, such as a lack of liquidity. It could show that there are few crypto traders. The market spread indicates the difference in the perception of the value of an asset.
In the Swyftx exchange, many people in Australia sell and buy digital assets. The force of such crypto traders is what makes the price of an asset move during different durations.
What determines the market spread in cryptocurrencies?
As you trade cryptocurrency on Swyftx, you should also understand the factors that determine the market spread.
Some new traders assume that the exchange platform imposes the market spread. On the contrary, the market spread depends on the demand and supply as well as the specific asset being traded.
Crypto that has a high trading activity is likely to have a small market spread compared to one with low levels of acting. Apart from that, the market spread is likely to be low if the liquidity is high. When the liquidity is low, the market spread is likely to be high.
The number of crypto traders managing the asset also has a direct impact on the market spread level. Before you start crypto trading on Swyftx, you should also know that the volatility of an asset can also determine the market spread.
Now that you understand what the market spread is all about, you may be wondering if it is possible to beat it.
To beat the market spread, you need to carefully think about every trade you want to engage in. Doing this can prevent you from regretting after placing a trade.
When you take your time to trade, you reduce the chances of making losses, and can easily beat the market spread.
Besides that, you should also try to find the smallest spread. Certain markets tend to correlate with each other. In such markets, the price moves based on similar things. One good example of markets that correlate is Altcoins and Bitcoin.
If, for instance, there is a surge in Bitcoin, Altcoins are also likely to surge. If you notice that the market spread of altcoins is smaller than that on Bitcoin, you should consider investing in the Altcoins since it may help you gain profits from crypto trading.
One of the common mistakes that some new crypto traders in Australia make is closing positions early. Instead of doing this, you should wait a little longer before closing positions.
During this time, assess why your trade is not profitable and find out if there are chances that this can change. Once you have evaluated this, you can now make your decision to either close position or wait longer.
Conclusion
The number of people who engage in cryptocurrency trading in Australia keeps on increasing from time to time.
Trading cryptocurrency is legal in Australia, and the ASIC regulates it. For you to enjoy the benefits of crypto trading, you have to learn all the crucial concepts, including market spread.
This is the difference between the sell and purchase price that is quoted for cryptocurrency. If you are ready to begin trading crypto, you should sign up with Swyftx.
All the best!
FAQs
This is a reliable crypto exchange platform that many people in Australia consider to be the best. It allows you to view what you make trading digital assets in real-time.
Trading cryptocurrency is a popular activity in Australia due to its potential returns. You can trade cryptocurrency anytime since the market is available 24 hours.
The market spread directly impacts the profit that crypto traders can make. If the marker spread is high, the chances of making financial losses increase.
Warren is the co-founder of CoinCryption. He has a passion for cryptocurrency and has been involved in this space for more than 7 years. His other love is digital marketing and has over 15 years of experience.