Spread Execution

Spread execution is the technical process of simultaneously entering two or more related trades to capture a price difference. In the context of derivatives, this usually involves buying one instrument and selling another to establish a hedged position.

Successful execution requires low latency and high liquidity to ensure both legs of the trade are filled at the intended prices. Slippage is the primary enemy of spread execution, as it can erode the profit margin of the trade.

Traders often use algorithmic order types like fill-or-kill or immediate-or-cancel to manage execution risk. In crypto, fragmentation across exchanges makes this process more complex, as the legs may need to be executed on different platforms.

This necessitates the use of smart order routers or sophisticated execution algorithms. Mastering spread execution is essential for arbitrageurs who rely on thin margins to generate consistent returns.