In this article
The spread on a crypto OTC trade is the difference between the price a desk quotes you and a reference price for the asset at that moment, or, on a two-sided quote, the difference between the price at which the desk buys and the price at which it sells. It is quoted in one of four forms, basis points, a percentage, an amount per unit or a total in dollars on the trade, and it is the way a desk that trades from its own book is paid.
Those four forms describe the same thing, and most misunderstandings between a client and a desk come from mixing them up: a spread measured from the mid price against one measured across the whole bid-ask width, an all-in quote against one with a commission on top, or two prices taken minutes apart in a moving market.
Every price, spread, fee and order book in this article is an illustration built to show the method. None is a statement of what desks or exchanges charge in the market.
Arithmetic on the illustrative trade used throughout: 2,000 units at a reference mid of $2,500.
What exactly is the spread on an OTC crypto trade?
The spread on an OTC crypto trade is the amount by which the desk's price is worse for you than a neutral reference price: higher when you buy, lower when you sell. A desk that acts as principal, meaning it buys from you or sells to you out of its own inventory, earns that difference instead of charging a separate fee.
A principal desk takes the other side of your trade itself. If you buy 2,000 units, the desk sells them to you, and it either already holds them or goes out and acquires them, on exchanges, from other desks or from another client. Between the moment it commits to your price and the moment it has covered its own position, the desk carries the risk that the market moves against it. The spread pays for that risk, for the cost of sourcing the asset, for the capital and credit the desk commits, and for its margin.
A desk can also act as agent. An agency desk or a broker does not take the other side: it finds a counterparty or works your order in the market and passes the resulting price through to you, then charges a commission. In that model there may still be a spread in the price you receive, because the market itself has one, but the intermediary's own pay is the commission. Some quotes combine a spread and a commission. The first thing to establish on any quote is therefore which model applies, because it decides what the number in front of you contains.
One consequence matters for the rest of this article. A spread is not written on an invoice. It exists only as a comparison between the price you traded at and a reference you chose. If you do not record the reference at the moment of the quote, you cannot say afterwards what the spread was.
What are the bid, the ask, the mid and the reference price?
The bid is the price at which the desk will buy from you, the ask is the price at which it will sell to you, the mid is the point halfway between the two, and the reference price is the neutral market price against which the quote is measured. The ask is also called the offer, and a client selling "hits the bid" while a client buying "lifts the offer".
Take a desk that quotes an asset at 2,496.25 bid and 2,503.75 ask. The desk buys at $2,496.25 and sells at $2,503.75. The mid of that quote is $2,500.00, the average of the two. The width between bid and ask is $7.50.
The reference price is a separate matter, and the one that needs agreeing. The mid of the desk's own quote is not a neutral reference, since the desk sets both sides and can shift the whole quote up or down. A reference has to come from outside the quote. Three kinds are used in practice:
- the mid price on one named exchange at a stated time, read from the best bid and best ask of its order book;
- a composite or index price built from several venues by a data provider, which is harder for one venue's thin book to distort;
- a time-averaged or volume-averaged price over a window, used when the trade is executed over hours instead of at one instant.
Which one you use matters less than using the same one for every quote you compare, and noting the time at which you read it.
How is an OTC spread expressed, and how do you convert between the forms?
An OTC spread is expressed in basis points, as a percentage, as an amount per unit of the asset, or as a total in dollars on the trade, and each converts to the others with the reference price and the trade size. A basis point is one hundredth of one percent, so 100 basis points equal 1%.
The conversions, written out:
- Spread in basis points equals the quoted price minus the reference price, divided by the reference price, multiplied by 10,000. For a sale, take the reference price minus the quoted price.
- Spread as a percentage equals the spread in basis points divided by 100.
- Spread per unit equals the reference price multiplied by the spread in basis points, divided by 10,000. It is also simply the quoted price minus the reference price.
- Spread in dollars on the trade equals the reference price multiplied by the quantity, which is the notional value, multiplied by the spread in basis points, divided by 10,000. It is also the spread per unit multiplied by the quantity.
The table applies those formulas to an asset with a reference price of $2,500 per unit.
| Spread in basis points | As a percentage | Per unit at $2,500 | Per $1,000,000 traded |
|---|---|---|---|
| 1 | 0.01% | $0.25 | $100 |
| 5 | 0.05% | $1.25 | $500 |
| 20 | 0.20% | $5.00 | $2,000 |
| 50 | 0.50% | $12.50 | $5,000 |
| 100 | 1.00% | $25.00 | $10,000 |
Each form has its use. Basis points let you compare quotes on different assets, sizes and days, since they do not depend on the price level. The amount per unit is how a trader reads a screen and how a desk states a firm price. The dollar total is what your investment committee, your auditor or your client will ask for, and the only form that can be added to commissions, network fees and bank charges to give the full cost of the transaction. In this article, basis points are always measured against the reference mid.
What is the difference between a two-way quote and a one-way quote?
A two-way quote gives both the price at which the desk buys and the price at which it sells, without the desk knowing which side you want; a one-way quote gives a single price for the direction you have disclosed. A two-way quote shows the desk's spread directly, while a one-way quote shows it only once you set the price against a reference.
On the two-way quote of 2,496.25 bid and 2,503.75 ask, the width is $7.50, which is 30 basis points of the $2,500.00 mid. You, however, trade on one side only. If you buy, you pay $3.75 above the mid, which is 15 basis points. If you sell, you receive $3.75 below it, again 15 basis points. The full width is what you would lose by buying and selling straight back; the half width is what one trade costs you.
The two formats suit different situations. Asking for a two-way quote keeps your direction private, which matters when a desk that knows you are a large buyer might lean its price upward, and it lets you check that the quote is centred on the market instead of shifted to one side. Its cost is that the desk must price the risk of being hit on either side, and for a very large or illiquid trade it may quote wider than it would for a known direction, or decline to quote two-way at all. A one-way quote is the norm once the relationship is established or the size makes the direction obvious, and it is often the tighter of the two because the desk can price the specific risk it will carry.
What drives the size of the spread a desk quotes?
The spread a desk quotes is driven mainly by six things: the size of the trade, the liquidity of the asset, its volatility, the time of day, the settlement terms and the client's credit. Each one is a cost or a risk the desk bears between giving you a price and closing out its own position.
Size comes first. A desk asked for an amount it can cover from inventory or from the best levels of the market has little to price. A desk asked for an amount several times larger must buy through deeper, more expensive levels, or hold the position while it sources the asset gradually. Spreads in basis points therefore tend to widen with size once the trade is large relative to the market's depth, which is the opposite of the volume discount a newcomer may expect.
Liquidity of the asset sets the starting point. An asset traded continuously on many venues with deep books can be hedged in seconds at a known cost. A thinly traded token, or one whose supply is concentrated in few hands, cannot, and the desk may hold the risk for hours or days. The spread on such an asset reflects the time needed to exit, not only the price visible on screen.
Volatility prices the waiting. The desk's exposure is the possible price move during the interval between your trade and its hedge. If an asset can plausibly move 0.2% in the few minutes the desk needs, a spread much below that leaves the desk exposed to a loss on an ordinary day. The same asset is quoted wider in a fast market than in a quiet one, and a desk that holds its quote firm for longer is giving you a short-lived option, which also has a price.
Time of day matters although crypto markets never close. Depth on exchanges rises and falls with the working hours of the main financial centres, and banking hours decide when fiat can move. A quote requested at a weekend or in the gap between major sessions is priced against thinner books and, where the desk cannot receive or send fiat until Monday, against a longer period of funding.
Settlement terms decide who finances the trade. If you pre-fund, with cash or assets already at the desk or its custodian, the desk carries no exposure to you. If you settle after the trade, the desk delivers, or commits its own balance sheet, before your side arrives. As an illustration of scale, financing $5,000,000 for one day at an illustrative annual rate of 5%, on a 360-day count, costs $694.44, about 1.4 basis points of the trade. The funding itself is a small item; the larger one is the risk that payment arrives late or not at all.
The client's credit is the sixth, and it follows from settlement. A desk grants post-trade settlement and trading limits on the strength of its due diligence on you: your entity, your financial standing, your record with the desk. A new counterparty with no history is typically asked to pre-fund, and where a desk does extend credit, the expected cost of that exposure is part of the price. Completing onboarding thoroughly and settling on time is, over months, one of the few things a client fully controls that narrows its spreads.
A desk's own position adds a seventh, temporary factor. A desk that already holds the asset you want, or has another client selling it, can fill you with little market risk and quote tighter than a desk that must source every unit; the next day the reverse may hold. Two desks therefore quote different spreads for the same trade at the same moment, which is the reason for asking more than one.
Spread, commission or both: how do you compare an all-in price?
An all-in price is the total you pay, or the net you receive, per unit once every charge by the intermediary is included, and it is the only figure on which a spread-only quote and a quote with commission can be compared. To build it, add the commission to the consideration on a purchase, or deduct it on a sale, and divide by the quantity.
Consider two illustrative quotes for the same purchase of 2,000 units when the reference mid is $2,500.00. Desk A quotes $2,507.50 all-in, with no commission. You pay $5,015,000, which is $15,000 above the $5,000,000 reference notional, a spread of 30 basis points. Desk B quotes $2,503.00 plus a commission of 0.15% of the consideration. The consideration is 2,000 multiplied by $2,503.00, or $5,006,000, of which $6,000, or 12 basis points, is spread. The commission is 0.15% of $5,006,000, or $7,509. You pay $5,013,509 in total, an all-in price of $2,506.75 per unit, $13,509 above the reference, or about 27 basis points.
Desk B's headline price looked $4.50 per unit better, and after commission it is better by $1,491 on the trade. The order could just as easily have reversed with a slightly higher commission rate. A quote is comparable only when you know the answers to three questions: is the price all-in, is any fee charged on top and on what base, and is the fee taken in cash or deducted from the asset delivered. A fee deducted from the asset changes the quantity you receive, which matters if you need an exact amount.
Neither model is better in itself. Spread-only pricing gives certainty: the desk carries the execution risk and you know your cost at the moment you deal. Commission pricing gives transparency on the intermediary's pay, while the execution price remains exposed to the market until the order is done.
What does a spread cost in dollars on a $5,000,000 trade?
On a $5,000,000 trade, each basis point of spread costs $500, so a spread of 10, 30 or 75 basis points from the mid costs $5,000, $15,000 or $37,500. The worked example below is a purchase of 2,000 units of an asset whose reference mid is $2,500, at three illustrative spreads labelled tight, middle and wide.
| Illustrative spread from mid | Price quoted per unit | Total paid for 2,000 units |
|---|---|---|
| Tight: 10 basis points | $2,502.50 | $5,005,000 |
| Middle: 30 basis points | $2,507.50 | $5,015,000 |
| Wide: 75 basis points | $2,518.75 | $5,037,500 |
The same spreads applied to a sale work in the other direction. At the middle spread, the desk bids $2,492.50 and you receive $4,985,000 for the 2,000 units. A fund that bought and later sold the same position at the middle spread each time, with the mid unchanged, would give up $30,000 across the two trades: the spread is paid on the way in and again on the way out.
The labels are relative to this example only: 75 basis points may be a fair price for a large block of a thinly traded asset in a fast market, and 10 basis points may be unavailable for it at any desk.
How does an OTC spread compare with slippage on an exchange order book?
Buying the same amount directly on an exchange replaces the desk's spread with slippage, the gap between the mid price and the average price actually paid as the order consumes successive levels of the order book, plus the exchange's trading fee. On the illustrative order book below, the same 2,000 units cost about 35 basis points all told, between the middle and the wide desk quotes.
The book is invented for the example. It shows the ask side of an exchange when the mid is $2,500, with enough resting sell orders in the first five levels to fill the order at once.
| Ask level | Price per unit | Units available | Cost of the level |
|---|---|---|---|
| 1 | $2,500.50 | 150 | $375,075 |
| 2 | $2,501.50 | 250 | $625,375 |
| 3 | $2,503.00 | 400 | $1,001,200 |
| 4 | $2,506.00 | 500 | $1,253,000 |
| 5 | $2,511.00 | 700 | $1,757,700 |
| Total | $2,506.175 average | 2,000 | $5,012,350 |
A single market order for 2,000 units takes all five levels. The first 150 units cost 2 basis points more than the mid; the last 700 cost 44. The average price is $2,506.175, and the slippage against the $5,000,000 reference notional is $12,350, or 24.7 basis points. With an illustrative taker fee of 0.10% of the amount traded, $5,012.35, the cost of the exchange route comes to $17,362.35.
The exchange bar is $12,350 of slippage plus a $5,012.35 fee, rounded. Network fees, custody and bank charges are excluded from every bar.
The comparison is fair to neither side unless its limits are stated. An order book is not static: a patient buyer can split the order over time and let the book refill, which usually lowers slippage and adds the risk that the market moves while the order is being worked. A displayed book can also change as soon as a large order starts to consume it. On the other side, the desk's price is known before you commit and covers the whole size at once, without your order being visible to the market. The right comparison is therefore between a certain cost and an estimated one, and many treasuries price both before each large trade.
How do you ask for quotes and compare them fairly?
You compare quotes fairly by asking each desk for the same thing at the same moment, recording the reference mid when each quote arrives, and converting every quote to an all-in spread in basis points against its own reference. Comparing raw prices misleads as soon as the market moves between two quotes.
An illustration shows why. Desk X quotes $2,507.50 for a purchase when the mid is $2,500.00, a spread of 30 basis points. Four minutes later, Desk Y quotes $2,509.00, and the mid has risen to $2,503.00. Desk Y's price is $1.50 higher, $3,000 more on 2,000 units, yet its spread is $6.00 on $2,503.00, about 24 basis points. Desk Y is the tighter quote; the market moved, and Desk X's earlier price is in all likelihood no longer available.
- Fix the requestWrite down the asset, the exact quantity or notional, the currency of payment, the settlement terms you want and when you intend to deal. Send every desk the identical request.
- Choose the referenceDecide which outside price you will measure against, such as a composite mid from a data provider, and keep it open on screen while you collect quotes.
- Ask for firm quotesState whether you want a two-way or a one-way price, and ask each desk to confirm that the quote is firm, for the full size, and for how many seconds it holds.
- Ask what the price containsConfirm whether the price is all-in or whether a commission or fee is added, on what base, and whether it is paid in cash or deducted from the asset.
- Record the mid with each quoteNote the time and the reference mid at the instant each quote arrives. Request quotes as close together as you can.
- Convert and compareTurn every quote into an all-in spread in basis points against its own recorded mid, then into dollars on your size. Add the costs outside the spread before deciding.
- Keep the recordFile the request, the quotes, the reference readings and the price dealt. The file shows afterwards what the trade cost and why that desk was chosen.
Ask only the small number of desks you would actually trade with: a request sent widely tells the market that a large order is coming and can move the price before you deal.
What does the spread not include?
The spread covers the price of the asset and nothing else: network fees, custody and withdrawal charges, bank charges, currency conversion and taxes sit outside it unless the desk states otherwise. On a large trade these items are small beside the spread, but they belong in the all-in cost and they differ from one desk to the next.
The items to ask about are these:
- Network fees. Moving the asset onchain to or from your wallet costs a transaction fee paid to the network, which depends on the network and its congestion at the time, not on the size of the trade. Ask whether the desk absorbs it or deducts it from the amount delivered.
- Custody and withdrawal charges. If the asset is delivered into or out of a custody account, the custodian may charge for the transfer or for holding the asset. These are the custodian's terms, not the desk's.
- Bank charges. An international wire carries a sending fee, and intermediary and receiving banks may deduct their own charges from the amount in transit. A wire that arrives short of the agreed amount delays settlement, so agree in advance who bears the charges.
- Currency conversion. If the trade is priced in dollars and you fund it from another currency, the conversion has its own spread, set by your bank or payment provider. On a large amount that second spread can exceed the first.
- Taxes and reporting. Any tax due on the disposal or acquisition depends on your jurisdiction and your entity, and is no part of the desk's price.
A complete cost record for a trade therefore has two parts: the all-in spread against the recorded reference, and the list of charges outside it, each with its amount and who paid it. Settlement itself, meaning who sends first and how each leg is confirmed, is a separate subject with its own risks, and a tight spread does not offset weak settlement terms.
