How crypto markets work
What actually happens between clicking "buy" and getting a price, and the hidden costs along the way.
Most crypto is traded on exchanges that keep an order book: a list of offers to buy (bids) and sell (asks). A trade happens when a buyer and seller agree, and that sets the price you see. The gap between the best bid and ask is the spread, large orders can move the price against you (slippage), and the volume figures used to judge activity are sometimes inflated by fake wash trades.
The order book
A centralized exchange keeps a live list of every open offer for a trading pair such as BTC/USD. Offers to buy are bids; offers to sell are asks (or offers). The exchange's matching engine pairs them up: when someone is willing to pay what someone else is asking, a trade happens, and that trade's price becomes the "last price" you see on screen.
Bid, ask and the spread
The spread is the gap between the best ask and the best bid. In the example it's $20, or 0.02% of the midpoint price ($100,000). If you bought and immediately sold, you'd lose about the spread before any fees. Busy markets like BTC/USD on large exchanges usually have spreads of a cent or a few dollars; small tokens on small exchanges can have spreads of several percent.
Apps with a simple "buy" button often show a single price that already includes their own spread on top of the market. That's one reason the instant-buy screen tends to cost more than placing an order yourself. See the true cost calculator.
Order types
| Order | What it does | The catch |
|---|---|---|
| Market | Buys or sells right now against the best offers in the book | You accept whatever prices are there; big orders "walk the book" and get worse prices (slippage) |
| Limit | Buys only at your price or lower, or sells only at your price or higher | It may never fill, or fill only partly |
| Stop (stop-market) | Sits hidden until the price touches your trigger, then becomes a market order | In a fast fall it can fill far below the trigger |
| Stop-limit | At the trigger, places a limit order instead | Controls the price, but may not fill at all if the market gaps past your limit |
Exchanges usually charge less to makers (orders that rest in the book and add liquidity, typically limit orders) than to takers (orders that fill immediately against the book, such as market orders).
Slippage: a worked example
Suppose you place a market order to buy 2 BTC against the book above. The first ask only has 0.5 BTC, so your order eats through the levels: 0.5 BTC at $100,010 + 1 BTC at $100,050 + 0.5 BTC at $100,120. That costs $200,115 in total, an average of $100,057.50 per bitcoin.
That's 0.047% more than the best ask you saw ($100,010) and 0.0575% above the midpoint. The difference is slippage. Here it's small because the example book is deep relative to the order; in a thin market, or during a crash when buyers vanish, the same order could move the price by several percent. A limit order caps the price you'll pay, at the risk of not filling.
Liquidity and market depth
Liquidity is how much you can trade without moving the price much. Analysts often measure it as depth: the dollar value of orders within, say, 1% or 2% of the midpoint. A coin can have a large market cap and still be thin: if only $50,000 of bids sit within 2% of the price, a $200,000 sell order will push the price down sharply. Liquidity also changes by the hour. It is usually thinner at weekends and during sudden moves, which is exactly when people most want to trade.
Crypto trades 24 hours a day on hundreds of exchanges at once, each with its own book. Prices stay close because arbitrage traders buy where it's cheap and sell where it's dear. A "price" on a data site is usually a volume-weighted average across exchanges, so it may differ slightly from the price on your exchange. Decentralized exchanges work differently, using pools of tokens and a formula instead of an order book: see automated market makers.
Trading volume, and why to doubt it
Volume is the value of everything traded over a period, usually 24 hours. Rising prices on high volume are generally taken more seriously than moves on thin volume, and volume is one of the inputs to rankings and sentiment indexes.
The trouble is that volume is easy to fake. Wash trading means trading with yourself, or with a partner, to create the look of activity: exchanges have done it to climb rankings, and token promoters do it to attract buyers. A peer-reviewed study of 29 exchanges (Cong, Li, Tang and Yang, published in Management Science in 2023) estimated that wash trading averaged over 70% of reported volume on the unregulated exchanges it examined. On blockchains, Chainalysis estimated suspected wash trading on Ethereum, BNB Smart Chain and Base at up to $2.57 billion in 2024, mostly in small tokens.
- Compare volume with depth: billions in daily volume with a thin order book doesn't add up.
- Be wary when one little-known exchange reports most of a token's volume.
- Look for round-number trades repeating at regular intervals, a classic bot pattern.
- Prefer data sites that rank exchanges by trust or liquidity, not raw volume.
For how market cap, supply and liquidity fit together, see market cap explained and the market cap calculator.
Related reading: Centralized vs. decentralized exchanges (CEX vs. DEX), and brokers · Crypto pump-and-dump schemes
Frequently asked questions
What is the bid and ask price in crypto?
The bid is the highest price a buyer is currently offering; the ask is the lowest price a seller will accept. You buy at the ask and sell at the bid, so the gap between them, the spread, is a cost of trading.
Is a limit order better than a market order?
Neither is always better. A limit order controls your price but may not fill; a market order fills right away but can suffer slippage, especially for big orders or thin markets.
What causes slippage?
Not enough orders at the best price. A large order uses up the best offers and fills at worse ones. Fast-moving markets make it worse because the book changes between when you click and when the order arrives.
Why is crypto price different on each exchange?
Each exchange has its own order book and its own buyers and sellers. Arbitrage traders keep prices close, but small gaps are normal, and big gaps can open on small or troubled exchanges.
Can trading volume be faked?
Yes. Wash trading, where the same party trades with itself, inflates volume. Research has found very high levels of it on some unregulated exchanges, so treat volume figures from small exchanges with caution.
Where to next
Sources
- Crypto Wash Trading, Cong, Li, Tang and Yang (NBER working paper 30783; Management Science, 2023)
- Market manipulation: suspected wash trading on select blockchains (Chainalysis, January 29, 2025)
- Types of orders (Investor.gov, US SEC)
- What to know about cryptocurrency and scams (FTC)
Written for beginners and checked against the sources listed. Last reviewed November 5, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.