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Understanding spreads in Trading

Even though cryptocurrencies are a new asset class, they share a lot in common with both equities and forex, so things are somehow interchangeable across assets.

What’s a spread ?

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A spread size is relative to the underlying assets market price, a spread of 0.04 is tiny for something that usually trades in the 100’s, yet huge for another asset that sells and is bought for 0.0100’s. 

What does it mean ?

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A different type of spread

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Edward Tufte would disaprove.

Indexing

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In this context, the spread is the area in between the indexed series and can be read as how both assets move with the market, a low spread means they move together and a positive or negative ( they can be negative in this context )means they have a different or opposite performance, consider 2 cryptocurrencies and their performance:
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The flipping spread & the trading signal.

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In reality there is no guarantee that they will perform this way and spreads are rarely this clear cut, this is where fundamental analysis and experience ( historical information )  can help you decide.  

Conclusion

About the Author :

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AI, Software Developer, Designer : www.k3no.com

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