If you're new to crypto arbitrage, you've probably heard the term "spread" but might not fully understand what it means or why it matters. This guide will explain everything you need to know about crypto spreads in simple terms.
Understanding spreads is essential for successful arbitrage trading. Once you know how to read and interpret spreads, you'll be able to identify profitable trading opportunities across different exchanges.
What is a Crypto Spread?
A spread is the difference between the highest price you can sell a cryptocurrency for and the lowest price you can buy it for across different exchanges.
Simple Example
Bitcoin Prices:
- Binance: $90,000 (cheapest to buy)
- OKX: $90,300 (most expensive to buy)
Spread: $90,300 - $90,000 = $300 (0.33%)
This means if you buy Bitcoin on Binance for $90,000 and sell it on OKX for $90,300, you'd make $300 before fees. The spread represents your potential profit opportunity.
Why Do Spreads Exist?
Spreads exist because cryptocurrency exchanges operate independently. Each exchange has its own:
- Order book: List of buy and sell orders
- Liquidity: Amount of trading activity
- User base: Different traders with different preferences
- Geographic location: Different time zones and regulations
These factors cause prices to differ slightly between exchanges, creating arbitrage opportunities.
How to Read Spreads
When you look at spread data on CoinNavigator, you'll see several key pieces of information:
1. Best Buy Price
The best buy price is the lowest price you can buy a cryptocurrency for across all monitored exchanges. This is where you should purchase if you're doing arbitrage.
Pro Tip
Always verify the best buy price is still current before executing a trade. Prices can change quickly, especially during volatile market conditions.
2. Best Sell Price
The best sell price is the highest price you can sell a cryptocurrency for across all monitored exchanges. This is where you should sell after buying from the best buy exchange.
3. Spread Percentage
The spread percentage shows the price difference as a percentage. This is calculated as:
Spread % = (Best Sell Price - Best Buy Price) / Best Buy Price × 100
Example Calculation
Best Buy: $90,000
Best Sell: $90,300
Spread: ($90,300 - $90,000) / $90,000 × 100 = 0.33%
What Makes a Spread Profitable?
Not all spreads are profitable. To determine if a spread is worth trading, you need to account for:
1. Trading Fees
Every exchange charges trading fees (typically 0.1-0.2% per trade). You'll pay fees when you:
- Buy on the "best buy" exchange
- Sell on the "best sell" exchange
Example: If both exchanges charge 0.1% fees, you'll pay 0.2% total in trading fees. This means you need at least a 0.2% spread just to break even.
2. Withdrawal Fees
Moving funds between exchanges costs money. Withdrawal fees vary by:
- Cryptocurrency: Bitcoin fees are typically $5-30, while stablecoins are cheaper
- Network: Different blockchains have different fees
- Exchange: Some exchanges charge higher withdrawal fees
3. Transfer Time
The time it takes to transfer funds between exchanges is critical. During this time:
- Prices can change
- Profitable spreads can disappear
- You might miss the opportunity
Important Warning
Always account for transfer time when calculating profitability. A spread that looks profitable now might not be by the time your funds arrive on the other exchange.
Minimum Profitable Spread
To determine if a spread is profitable, calculate your total costs:
Profitability Calculation
Scenario: 0.5% spread on Bitcoin
Costs:
- Buy fee (0.1%): $90
- Sell fee (0.1%): $90.45
- Withdrawal fee: $15
- Total costs: ~$195
Gross profit: $450 (0.5% of $90,000)
Net profit: $450 - $195 = $255
Conclusion: This spread is profitable!
As a general rule, you typically need at least a 0.3-0.5% spread to be profitable after all fees, depending on:
- The exchanges you're using
- The cryptocurrency you're trading
- Current network fees
Factors That Affect Spreads
Several factors influence the size and frequency of spreads:
1. Market Volatility
High volatility creates larger spreads because:
- Prices change rapidly on different exchanges
- Traders react at different speeds
- Liquidity can dry up quickly
However, high volatility also increases risk, as prices can change during transfers.
2. Exchange Liquidity
Exchanges with higher liquidity typically have:
- Smaller spreads (more competition)
- Faster price updates
- More stable prices
Major exchanges like Binance and OKX usually have tighter spreads than smaller exchanges.
3. Trading Volume
High trading volume means:
- More price updates
- Faster convergence of prices
- More arbitrage opportunities (but they disappear quickly)
4. Geographic Factors
Different regions can have:
- Different trading hours
- Different regulations
- Different user preferences
- Network latency differences
These factors can create persistent spreads between exchanges in different regions.
How to Use Spreads for Arbitrage
Now that you understand spreads, here's how to use them for arbitrage:
Step 1: Monitor Spreads
Use tools like CoinNavigator to monitor spreads across multiple exchanges in real-time. Check regularly (every 15-30 minutes) to catch new opportunities.
Step 2: Identify Profitable Spreads
Look for spreads that are:
- Large enough: At least 0.3-0.5% to cover fees
- Recent: Data is fresh (updated within 15 minutes)
- Stable: Not changing too rapidly
Step 3: Verify Prices
Always verify prices directly on the exchanges before trading. CoinNavigator provides estimates, but actual prices may differ slightly.
Step 4: Calculate Profitability
Calculate your net profit after accounting for:
- Trading fees (buy and sell)
- Withdrawal fees
- Network fees
- Time cost (prices can change)
Step 5: Execute the Trade
If the spread is profitable:
- Buy on the "best buy" exchange
- Withdraw to the "best sell" exchange
- Sell on the "best sell" exchange
- Calculate your actual profit
Common Mistakes to Avoid
1. Ignoring Fees
The biggest mistake is not accounting for all fees. A 0.5% spread might look profitable, but after fees, it could be a loss.
2. Not Verifying Prices
Always verify prices on the actual exchanges. Spread data is updated every 15 minutes, so prices can change.
3. Trading During High Volatility
During high volatility, spreads can appear large, but prices can change rapidly during transfers, eliminating profits.
4. Not Having Funds Ready
For fast execution, keep funds on multiple exchanges. Transferring funds takes time, during which spreads can disappear.
Conclusion
Understanding crypto spreads is essential for successful arbitrage trading. Spreads represent the price difference between exchanges and can create profitable trading opportunities when they're large enough to cover fees.
Remember to:
- Always account for all fees when calculating profitability
- Verify prices on exchanges before trading
- Monitor spreads regularly to catch opportunities
- Start small and learn from experience
Use CoinNavigator to track real-time spreads across multiple exchanges and identify profitable arbitrage opportunities.
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