Definition in one sentence: the spread is the difference between the best bid and the best ask of an asset at a given instant — a cost paid on every entry and every exit.
What it measures
At any moment on a market, there is a best price at which you can sell (the bid) and a best price at which you can buy (the ask), slightly higher. The difference between the two is the spread.
best ask − best bidBuying then immediately reselling, with no price movement at all, already loses the spread amount. It is the entry cost of any transaction, distinct from slippage (which depends on the movement during execution).
How to read it
The spread is often measured as a percentage of price. It is tiny on highly liquid pairs (a few hundredths of a percent on BTC/USDT) and much wider on thinly traded assets. The more often a strategy trades, the more the cumulative spread weighs: multiplied by hundreds of round trips, a 'negligible' spread becomes a major cost item.
The classic mistake
Evaluating an active strategy without accounting for the cumulative spread. A strategy that enters and exits several times a day pays the spread each time; a backtest that ignores it overestimates performance, sometimes spectacularly. It is one of the most frequent gaps between a flattering backtest and a disappointing reality.
At Sextant
Sextant is a transparent quant platform: real costs, spread included, are modelled per pair in versioned backtests. It is also a reason for the engine's patient stance — a system that knows how to abstain trades less, so pays less spread. The methodology states the cost assumptions used.
Frequently asked questions
What is the bid-ask spread?
It is the difference between the best price at which you can sell (bid) and the best price at which you can buy (ask) at a given instant. Buying then immediately reselling, with no price movement, already loses the spread amount.
Why is the spread wider on some assets?
The spread reflects liquidity: on a heavily traded pair such as BTC/USDT, it is tiny; on an illiquid asset, it widens sharply. It also widens during high volatility, when market makers protect themselves.
Does the spread weigh more on active strategies?
Yes. The spread is paid on every entry and every exit. A strategy that trades often pays it hundreds of times, turning a negligible unit cost into a major item. Trading less mechanically reduces this cost.