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Why do Cryptocurrencies Have Higher Spreads?
Why do Cryptocurrencies Have Higher Spreads?

This article explains why cryptocurrencies have higher spreads than the FX market.

Todd Hodges avatar
Written by Todd Hodges
Updated over 9 months ago

For cryptocurrencies, spreads tend to be higher compared to traditional currency pairs. This is primarily due to the higher volatility and lower liquidity found in the cryptocurrency markets compared to the Forex market.

The Forex market is one of the largest and most liquid markets in the world, which helps keep spreads relatively low. In contrast, the cryptocurrency market, while large and growing, does not yet match the Forex market in terms of liquidity and trading volume. This increased risk and lower liquidity mean that brokers have to offer wider spreads to mitigate their risk.

Moreover, the infrastructure and market depth for trading traditional currencies are more established, leading to tighter spreads. For cryptocurrencies, although the market has matured significantly over the past few years, it still faces issues such as fragmented liquidity pools and varying degrees of regulation, which can contribute to wider spreads.

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