Understanding the Bid-Ask Spread

When you hear the term bid-ask spread, the price gap between the highest buy order and the lowest sell order in a market. Also known as price spread, it shows market efficiency and the cost you pay to enter or exit a position.

On a Decentralized Exchange, a platform that lets users trade directly from their wallets without a central order book the spread is generated by the automated market maker algorithm. The algorithm draws from the liquidity pool, a collection of tokens that provides the funds needed for swaps. More liquidity in the pool usually narrows the spread because the pool can absorb larger trades without moving the price far. Conversely, low liquidity expands the gap, making each trade pricier. This relationship creates the semantic triple: Liquidity reduces bid-ask spread.

The traditional order book, a list of all buy and sell orders at different price levels still matters on many DEX interfaces that display a virtual order book. The depth of that book—how many orders sit close to the market price—directly influences the spread. A deep order book means many orders cluster near the best bid and ask, tightening the spread. Shallow depth widens it, signaling higher risk for traders. Hence we have another triple: Market depth affects bid-ask spread.

Why the Spread Should Matter to Every Trader

Knowing the spread helps you estimate the true cost of a swap before you click. If you trade a token on a DEX with a 0.5% spread, that 0.5% is effectively a hidden fee on top of gas and platform fees. Spotting a tight spread can point to a healthy market, while a sudden widening may indicate low liquidity, high volatility, or a pending large order. By monitoring the spread, you can time entries, set realistic slippage limits, and avoid unexpected price movement.

Below you’ll find a hand‑picked collection of articles that dive deeper into how spreads work on different platforms, how to read them on order books, and strategies for minimizing their impact. Whether you’re just starting out with DEX swaps or you’re fine‑tuning a professional trading bot, the posts ahead give you practical insights you can put to use right away.