Foundations · Ch. 01
Value and Price
You check the price of ETH. It says $3,000. You hit buy, and pay $3,000.20. Nobody lied to you. There was never just one price to begin with.
The Idea
Intuition
We say the price like it’s one number. It isn’t. Look closely and a market is really a stack of offers. Someone will buy, but only up to a certain price. That’s the bid. Someone will sell, but only above a certain price. That’s the ask. Behind each of them, more buyers and sellers wait their turn.
The bid and the ask never quite touch. The little gap between them is the spread. So there’s no tidy middle number you trade at. Buy right now and you pay the ask. Sell right now and you get the bid. The spread is simply what it costs to trade this instant instead of waiting.
There’s one more number worth knowing: a fair or oracle price. It’s an outside estimate of what the thing is really worth, usually averaged across many venues, and it almost never lands exactly on the bid or the ask. The panel shows all three together.
So keep this in mind. Because there’s never just one price, the gaps between these numbers are where everything interesting happens. How much funding you pay, when you get liquidated, what your PnL settles at: each of those comes down to which price is being used, and how far it sits from the others.
The Math
How It’s Calculated
In plain terms: the spread is just the distance between the best ask and the best bid, and the “mid” is the point halfway between them.
The spread is what it costs to cross the market:
The mid price is the fair-ish midpoint people quote as “the price”:
Neither is what you actually trade at. Buying pays the ask, selling hits the bid. The mid is a convenient fiction. The spread is the real cost.