When making trades on an exchange, you are provided a price listing for each listed pair. However, sometimes when you want to place a buy or sell order, the price for your order may differ from the listed price. This difference, or the bid-ask spread, is the difference between the prices listed and those for immediate sale or purchase. More precisely, it is the highest price another buyer is willing to pay (their bid) and the lowest price another seller is accepting (their ask). If you are a seller you will see the bid price, while a buyer will see the ask price. A seller has to then decide if they are willing to accept the difference in their own asking price and the available bid price, and vice versus for a buyer who has to decide if they are willing to pay more.
The bid-ask spread can be a useful tool in measuring liquidity in the markets, as it directly measures the cost of making transactions without any delays versus placing an order to be filled at a later time. If there is a large spread, it can indicate other traders don't have much demand for the pair in question, or that more people are selling rather than buying. As an example, fiat currency is very liquid, and has almost no spread. Alternatively, less liquid listings with less people actively trading may have spreads up to a few percent.
In traditional finance, brokers are governed by the SEC’s National Best Bid and Offer (NBBO) regulation. The NBBO requires brokers to trade at the best available ask and bid price, which is continuously aggregated across a multitude of exchanges. Traders don’t have to compare multiple rates offered by different brokers to complete a simple trade, because the NBBO ensures that all brokers offer the best bid and offer prices available. The NBBO assures securities traders that their rate is a rough reflection of the current market conditions–regardless of which broker they choose to work with. Crypto traders going through crypto exchanges, however, face significant uncertainty. Prices for the same trading pairs can vary radically between exchanges, and there is no NBBO equivalent in the cryptocurrency markets that guarantees traders are working with the best bid and ask price available.
Here on Amplify Exchange, we are taking the BBO practices traditional brokers offer and extending it to the cryptocurrency trading market. Amplify Exchange's brokerage services enable users to trade at the best prices available under an umbrella of multiple crypto exchanges. Whether you are buying or selling, this saves you time since as you won't have to check multiple exchanges before making a trade, and saves you money by getting you the best prices available. We aim to help you trade with confidence knowing that you are getting the best prices available.