An Analysis of Bid-Ask Spreads on the Kraken Exchange
This blog 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 free to try for the first 7 days. Paid monthly subscriptions start at $3/month.
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.
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.
The mean bid-ask spread for BTC/USD was only 0.01%, while XRP/EUR had a mean bid-ask spread of 0.6%.
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.
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.
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.
Try HodlBot for Kraken
HodlBot makes it easy for cryptocurrency investors to create and backtest their own custom portfolios. If you’re the set it and forget it type, you can try one of the HODL indices, which are designed to track the market.
To get started, all you need is a Kraken account. HodlBot automates everything else, from trading to rebalancing. It’s free to get started.
About the Author
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.