Spread

Overview

Meaning and boundaries

Spread is the difference between two prices, rates, yields, or values that are compared for trading, pricing, funding, risk, or performance analysis. A spread is the difference between two prices, often the best selling price and best buying price quoted in a market. For a trading pair, the bid–ask spread reflects part of the immediate cost of conversion; other contexts use the term for a provider markup above a reference rate. Always identify which pair of prices and whether fees are included.

How it works in practice

A payment quote can be decomposed into reference price, bid-ask difference, provider markup, trading fees and network costs. The seller or treasury should compare these at the actual trade size, because a thin market can make the spread much wider for a large conversion. Store the offered rate and execution details so customers and accountants can distinguish the provider’s price from the market observation and from later realized slippage.

Checks and failure points

Thin liquidity can widen spreads when a merchant needs to convert a large receipt. Quoting a midpoint as if it were guaranteed executable may understate settlement costs.

Operational evidence and decisions

To compare conversion providers, request an executable quote for the same asset pair, direction, size and time. A low advertised fee does not guarantee a cheaper result if its exchange-rate markup is larger. Spreads also vary with market conditions, so a historical rate may not predict the cost at settlement. Accounting records should show the actual converted amount rather than reconstructing it from a reference price alone.

How it differs from related terms

Spread measures the price difference; slippage measures the difference between expected and actually executed price for an order. Related entries: Quoted Spread; Effective Spread; Arbitrage.