Top-of-Book Spread
Top-of-book spread is the difference between the highest bid and the lowest ask on an order book at a given moment, usually expressed in basis points of the mid price. It is the most direct measure of what it costs a participant to trade immediately in both directions.
TradFi parallel: Like the quoted bid ask spread on a listed equity, the price of immediacy for anyone who wants to trade right now.
Key Takeaways
- 01Top-of-book spread is the gap between best bid and best ask, expressed in basis points of the mid price
- 02It measures the cost of immediacy for the first unit traded, not for any meaningful size
- 03Time weighted measurement over a window is more informative than a point in time reading
- 04Behaviour under stress matters as much as the typical value, since spreads widen exactly when they are most needed
- 05Spread must be read alongside depth, since a tight top of book can sit above an almost empty order book
How It Works
The calculation is simple: subtract the best bid from the best ask, divide by the mid price, and express the result in basis points. A 10 basis point spread means a round trip at the touch costs roughly one tenth of one percent before fees. The complications are not in the formula, they are in how the number is sampled and reported.
A single spread reading describes one instant. A spread that is 20 basis points most of the day and 400 basis points during every volatility event has an average that flatters it and a median that hides the same problem. This is why time weighted measurement over a defined window is more informative than a point in time quote, and why the distribution matters as much as the central value. The most useful comparisons state both the typical spread and how it behaves under stress.
Spread also cannot be read alone. It describes the price of the first unit traded, not the price of any meaningful size. A book can show a very tight top of book with almost nothing resting behind it, so that any real order walks straight through several price levels. Spread paired with depth at a stated distance from mid describes a market, spread alone describes a headline.
Real World Examples
Tight average, wide when it counts
A token shows a narrow average spread over a month, driven by long quiet periods. During each of the month's three largest price moves the spread widened by an order of magnitude. The average is accurate and tells a participant very little about what they would have paid when they most wanted to trade.
Tight spread over a thin book
Best bid and best ask sit 15 basis points apart with minimal size at each. An order of moderate size clears several levels and pays far more than 15 basis points. The quoted spread was never wrong, it was answering a different question than the one the trader had.
Spread differing sharply across venues
The same token quotes tightly on its primary venue and much wider elsewhere. A single spread figure for the token conceals that. Per venue measurement is the only way to see where liquidity actually is.
Frequently Asked Questions
What is a good spread for a crypto token?
There is no universal answer, because achievable spread depends on volatility, market capitalisation, venue and the token's organic volume. A figure that is unremarkable for a large liquid asset can be unachievable for a thin one. Spread is most useful compared across similar assets on the same venue rather than against an absolute benchmark.
Why do spreads widen during volatility?
Quoting both sides carries inventory risk, and that risk rises when prices move quickly. Widening is a rational response rather than a failure, which is why agreements often set different targets for normal and stressed conditions instead of pretending one number applies to both.
Is a tighter spread always better?
Not on its own. A very tight spread with almost no depth behind it is cheap to maintain and does not help anyone trading real size. Spread and depth have to be assessed together, since improving one at the expense of the other is straightforward.
How does quoted spread differ from effective spread?
Quoted spread is the visible gap between best bid and best ask. Effective spread is what a trade actually paid, including any movement through the book. For anything larger than the size resting at the touch, effective spread is the more honest measure.
Related Terms
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