Where Does the $100 Spread Go? Unveiling Price‑Time Priority in Crypto Exchanges

Price‑Time Priority

The matching engine of a modern exchange follows the price‑time priority rule, which guarantees fairness in the order book.

Price priority : For buy orders, a higher bid price receives higher priority; for sell orders, a lower ask price receives higher priority.

Time priority : When multiple orders share the same price, the one that arrived earlier is matched first.

Scenario: Who receives the $100 spread?

Assume the following order‑book snapshot (prices in USD, amounts in BTC):

Ask (sell) orders

$69,900 – 0.5 BTC

$69,950 – 1.2 BTC

$70,010 – 2.0 BTC

Bid (buy) orders

$69,850 – 0.8 BTC

$69,800 – 1.5 BTC

The best ask is $69,900 and the best bid is $69,850, so no trade occurs initially.

A new limit order to buy 1 BTC at $70,000 is submitted. The engine processes it as follows:

First match : The order matches the lowest‑priced ask ($69,900). The trade executes at the existing ask price, giving the buyer a $100 price improvement on 0.5 BTC.

Second match : The remaining 0.5 BTC demand matches the next cheapest ask ($69,950). Again the trade executes at the seller’s price, providing another price improvement.

The buyer’s average execution price is calculated as:

(69,900 × 0.5 + 69,950 × 0.5) / 1 = 69,925 USD

Thus the $100 spread is fully returned to the buyer through price improvement.

How exchanges earn revenue

Trading fees : A small percentage (e.g., 0.1 %) is charged on each side of a trade.

Listing fees : Projects pay to have their tokens listed.

Withdrawal fees : Fixed fees for moving assets off‑chain.

Value‑added services : Interest on leveraged positions, funding‑rate splits on futures, management fees on investment products.

Internal market makers : Exchanges run liquidity teams that place both buy and sell orders and earn the bid‑ask spread under the same fair rules.

Why the design matters

Trust and liquidity are the lifelines of an exchange. If users suspect the matching engine is opaque and siphoning spreads, they will migrate to more transparent platforms, eroding market depth. The price‑priority rule incentivizes participants to post competitive quotes, narrowing spreads and deepening the order book.

Consequently, modern exchanges survive by offering a fair, transparent trading environment that attracts high volume, allowing them to profit from modest but stable fee revenue rather than exploiting price differences.