What Is a Spread?
In market structure, spread usually means the bid-ask spread: the gap between the highest price a buyer will pay and the lowest price a seller will accept. In derivatives and relative-value trading, a spread is the difference between two related instruments, such as a perp and the underlying spot (the basis), two expiries, or two venues.
How Spreads Work
A tight bid-ask spread is a sign of liquid, competitive markets. A wide spread raises the cost of a round trip and often shows up in thin books, volatile moments, or smaller altcoins. Spread trades, by contrast, are positions that profit if the difference between two prices narrows or widens, rather than from a single outright move.
Why It Matters for Traders
The spread is a real cost. Entering and exiting a perp through a 4 basis-point spread twice can erase a small edge before funding. Wide spreads also make stop orders more likely to fill worse than planned, which is why size and venue choice should respect the book you are actually trading.
How Perps Traders Use This
Check the bid-ask and the depth around your size before you click. If you are comparing venues, look at the spread plus fees, not the last price alone. Basis and calendar spreads are a separate tool: they can hedge or express a relative view without taking full directional risk.
Common Mistakes
- Quoting a mid price as if you can transact there in size.
- Ignoring that spreads widen during liquidations and news, exactly when you most want to exit.
- Mixing up bid-ask spread with a structured spread trade that uses two contracts.
