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 ?

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 ?

A different type of spread

Edward Tufte would disaprove.

Indexing

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:

The flipping spread & the trading signal.

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 :

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

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