An Analysis of Bid-Ask Spreads on the Kraken Exchange

Welcome to a 3-piece series on the Kraken exchange. In this study, we’re going to examine bid-ask spread for every trading pair available on Kraken. The other two studies will feature an analysis of order book depths and slippage.

This study was created by HodlBot — the world’s smartest cryptocurrency trading bot. HodlBot helps cryptocurrency investors automate portfolio creation, indexing, and rebalancing. HodlBot is currently available to users on Binance, Kraken, Bittrex, and KuCoin. It’s completely free to try.

Kraken order book chart

Order books are a collection of offers to sell (asks) and offers to buy (bids). Order books form a valley of bids and asks around the market price.

What is the Bid-Ask Spread?

The bid-ask spread is the distance between the maximum price someone is willing to pay (bid) and the minimum price someone is willing to sell (ask). Bid-ask spreads are typically measured as a percentage of the market price.

Bid-ask spreads will shrink whenever there is more trading volume & liquidity. For example, here’s what the bid-ask spreads looks like for BTC/USD, the #1 traded pair on Binance, compared to XRP/EUR, the #10 traded pair on Kraken.

Bid ask spread distribution of BTC/USD and XRP/EUR Kraken

The mean bid-ask spread for BTC/USD was only 0.01%, while XRP/EUR had a mean bid-ask spread of 0.6%.

Kraken summary stats for bid ask spreads btc/usd and xrp/eur

Here are summary statistics for bid-ask spreads for these two pairs.

You can find summary statistics for the bid-ask spread for every trading pair on Kraken in the Google Drive link here.

Bid-Ask Spread vs. Trading Volume

As we mentioned earlier, bid-ask spreads will shrink whenever there is more trading volume & liquidity.

To verify this claim, I ran a linear regression with mean bid-ask spreads on the Y-axis and trading volume, after a logarithmic transformation, on the X-axis.

Kraken bid ask spread regression against trading volume

In extreme cases, you can examine up to 10% bid-ask spreads on Kraken. However, the majority of trading pairs have bid-ask spreads between 0–2%.

Here’s the exact same graph, but trading pairs color-coded by rank.

kraken bid ask spread regression against trading volume by volume rank

Ranks #1–50 are fine and don’t have excessively high bid-ask spreads. But, you will start to see more problematic bid-ask spreads for pairs ranked #50 and above.

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About the Author

Anthony Xie Founder of HodlBot

Written by Anthony Xie

I’m the founder of HodlBot.

I’m a big data nerd. I like to talk about all things data, finance, and crypto. You can find me on Twitter here.

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