How the spread is calculated
The spread is the ask minus the bid. When buyers bid one price and sellers ask a slightly higher one, the difference is the spread. It may be expressed in absolute terms or as a percentage of the price, the latter allowing comparison across assets that trade at very different levels.
The spread as a cost
Every round trip crosses the spread. Buying at the ask and immediately selling at the bid results in a loss equal to the spread, before any other fees. For this reason the spread is treated as a cost rather than a feature of the quote. A narrower spread lowers the cost of entering and exiting, which is most significant for frequent or large-volume trading.
Why spreads widen and narrow
The spread varies with market conditions. When an asset is liquid and heavily traded, many buyers and sellers are present at the quote and the spread remains narrow. When liquidity declines, during quiet hours, in less actively traded assets, or amid sudden volatility, fewer participants stand on each side and the spread widens. A widening spread often indicates deteriorating conditions.
Comparing spreads across markets
Because it tracks liquidity, the spread is a quick way to compare how tradable two markets are. A heavily traded asset typically shows a very narrow spread, while a thinly traded one shows a wider spread. Comparing spreads as a percentage of price, rather than in absolute units, keeps the comparison consistent across assets at different price levels.
Spreads on SiftingIO
SiftingIO publishes pricing across stocks, forex, crypto, and commodities under one schema, so the bid, the ask, and the spread between them are represented consistently in every market. The aggregated fair price provides a single representative reference between the two sides, drawn from multiple independent sources rather than one venue, which is particularly useful where spreads vary between venues.