Spread in Orderbook

1. What is Spread and why is it important?

Spread, also referred to by other terms such as Slippage or Gap, is the difference between the bid price and the ask price.

Buyers always want to buy at lower prices, while sellers always want to sell at higher prices. Therefore, a price Spread ( Gap, Slippage) is always formed. The aggregation of all pending buy orders and all pending sell orders on an exchange is called the order book.

Similarly, cross-exchange buying and selling also follows that rule. Therefore, the formation of Spread in funding rate arbitrage is unavoidable.

When you initiate a position to execute funding rate arbitrage, spread directly impacts your profitability.
A favorable spread (long at a lower price and short at a higher price) helps increase your profit ratio.
Conversely, if the profit from funding rate arbitrage is not sufficient to offset the spread, you will incur a loss.

Therefore, Spread is an extremely important factor in the Funding Rate Arbitrage Strategy.

2. How to optimize the spread?

With Spread, it is very difficult for retail users without proper tools, you can only rely on your own judgment to achieve a favorable outcome (which unintentionally turns you into a trader).

The good news is that XAPY provides a real-time cross-exchange slippage checking tool, helping you make the most advantageous decisions. Especially after checking cross-exchange slippage, you no longer need to place orders manually (as doing so carries a very high slippage risk). XAPY also provides a tool that allows you to execute orders simultaneously on two different exchanges at the same time.

The illustration below shows an ETH check between Huobi and Gate, including parameters such as entry/exit slippage, expected profit if holding for 1 week (2 weeks), cross-exchange bid pricing, and the time of the next funding calculation.