How is the price of a digital asset determined on an exchange?

When you trade cryptocurrency, you see prices that are constantly changing. But how is the value of, for example, Bitcoin (BTC), Ethereum (ETH), or any other digital asset actually determined?

The price of a cryptocurrency on a trading platform is primarily influenced by supply and demand. Buyers indicate how much they are willing to pay, while sellers specify the price at which they are willing to sell their digital assets. When these buy and sell orders align, a transaction takes place.

An important component of this is the bid-ask spread: the difference between the highest price a buyer is willing to pay and the lowest price at which a seller is willing to sell.

In this article, we explain how price determination works on a cryptocurrency exchange, how to interpret the order book, and the role that liquidity and trading orders play in establishing the market price.

1. What is the Bid-Ask Spread?

The bid-ask spread is the difference between the highest bid price and the lowest ask price for a cryptocurrency within a trading market.

To understand this properly, it is important to distinguish between two terms:

• Bid Price: the highest price a buyer is currently willing to pay for a cryptocurrency.
• Ask Price: the lowest price at which a seller is currently willing to sell their cryptocurrency.

The difference between these two prices is known as the spread.

Practical Example

Suppose you are viewing the order book for Bitcoin (BTC) on Mercury Iconex and see the following prices:

The calculation is:

$60,100 - $60,000 = $100

In this example, the spread is $100.

This means that the highest available buy order is $60,000, while the cheapest available sell order is $60,100.

A buyer who wishes to purchase immediately can generally transact at the lowest available ask price. A seller who wishes to sell immediately can generally transact at the highest available bid price.

2. Why is the Bid-Ask Spread important?

The spread provides insight into the trading conditions and liquidity of a given cryptocurrency market.

A small spread means that the buy and sell prices are close to one another. A large spread indicates a greater price gap between what buyers are willing to pay and what sellers are willing to accept.

This can affect the price at which your order is ultimately executed.

Small spread

• Buy and sell prices are close together.
• There is generally sufficient trading interest on both sides of the market.
• Buying or selling immediately can be done at relatively favorable prices.

Large spread

• There is a larger gap between the buy and sell prices.
• Available liquidity may be limited.
• Buying or selling immediately may prove relatively more expensive.

A small spread is often an indicator of a liquid market, though it does not tell the whole story. The trading volumes available at various price levels are also important.

3. How are prices determined on a cryptocurrency exchange?

The price of a cryptocurrency is formed through the interaction between buy and sell orders. On a centralized exchange, these orders are processed via a system known as the Matching Engine.

The process consists of several components.

3.1 The Order Book

The order book is an overview of all open buy and sell orders for a specific trading pair.

It shows the quantities of cryptocurrency that traders wish to buy or sell, as well as the prices at which they are willing to do so.

The order book consists of two sides:

Buy Orders (Bids)

These are orders from users who wish to purchase cryptocurrency. The highest bid price appears at the top, as this buyer is willing to pay the most.

Sell Orders (Asks)

These are orders from users who wish to sell cryptocurrency. The lowest ask price appears at the top, as this seller is willing to sell at the lowest price.

On the trading interface, buy and sell orders may be displayed in different colors. The specific color scheme depends on the platform's settings.

3.2 Market Orders and Limit Orders

When you place a buy or sell order, the order type determines how your transaction is executed.

There are two primary order types:

Limit Order

With a limit order, you set the price at which you wish to buy or sell cryptocurrency.

• For a buy order, you specify the maximum price you are willing to pay.
• For a sell order, you specify the minimum price you wish to receive.

Your order will only be executed if a counterparty is available who can meet your specified price.

Consequently, there is no guarantee that a limit order will be executed immediately. The order may be filled entirely, partially, or not at all.

Market Order

With a market order, you indicate that you wish to buy or sell immediately at the best available prices in the order book.

To facilitate this, the matching engine searches for available opposing orders. For a large market order, execution may occur across multiple price levels. As a result, the final average execution price may differ from the price you initially saw on the trading interface.

This phenomenon is known as slippage.

3.3 The Matching Engine

The Matching Engine is the technical system that automatically connects buy and sell orders.

When a buy order matches a sell order, the Matching Engine can execute a transaction.

This occurs, for example, when:

• A buyer’s bid price equals a seller’s ask price.
• A buyer’s bid price is higher than the lowest available ask price.

Practical Example

A user wants to buy 1 BTC using a market order.

The order book shows the following sell orders:

The Matching Engine begins at the lowest available sell price.

To fulfill the entire 1 BTC order, the available sell orders at various price levels are used in succession.

The buyer ultimately receives 1 BTC, but the average purchase price may end up being higher than $60,100.

This example illustrates why available liquidity and order size are important factors when trading.

3.4 The Current Market Price

The price typically displayed as the current market price on a trading platform is based on the most recently executed transaction for that specific trading pair. When a new transaction takes place at a different price, the market price is updated.

It is important to distinguish between:

• Ask price: the lowest price at which a seller is currently willing to sell.
• Bid price: the highest price that a buyer is currently willing to pay.
• Last transaction price: the price at which the most recent transaction was executed.

These three prices may differ from one another.

Therefore, the last transaction price is not necessarily the price at which you can immediately buy or sell at that moment.

3.5 The influence of large orders

Large buy and sell orders can influence the price movement of a cryptocurrency.

This is particularly noticeable when a trading market has relatively low liquidity.

A large buy order can consume multiple sell orders in the order book, thereby reaching progressively higher price levels.

Conversely, a large sell order can consume multiple buy orders, pushing the price down to lower levels.

The size of an order and the available liquidity are key factors in determining the extent to which a transaction impacts the price.

4. Which parties and systems play a role in market dynamics?

Various market participants and technical systems work together to facilitate trading on a cryptocurrency exchange.

4.1 Market makers

Market makers are market participants who actively place buy and sell orders to add liquidity to a trading market.

By providing orders on both sides of the order book, they help ensure that other users can trade more easily.

Market makers can generate revenue from the difference between their buy and sell prices, though they also face market risk in the process.

4.2 Liquidity providers

Liquidity providers supply trading capital and buy or sell orders to support market liquidity.

These can be professional traders, institutional entities, or automated trading systems.

Sufficient liquidity can contribute to narrower spreads and better execution of trading orders.

4.3 Takers

Takers are market participants who consume existing liquidity from the order book.

This occurs, for example, when a user places a market order that is immediately matched with an existing buy or sell order. A "taker" therefore removes available liquidity from the order book.

4.4 Exchange Infrastructure

A cryptocurrency exchange utilizes various technical components to process trading activities.

Key components include:

• Trading Interface: the environment in which users view trading pairs and place buy or sell orders.
• Order Book: the overview of open buy and sell orders.
• Matching Engine: the system that connects matching orders and executes transactions.
• Trade Administration: the systems that record executed transactions and associated balances.

These components work together to ensure the trading process is handled correctly.

It should be noted that the matching engine and the order book are not the same as the blockchain. A centralized exchange can process internal trading orders and transactions within its own platform without every individual transaction being recorded directly on a blockchain.

5. Practical example: what happens when a new token is introduced?

Suppose a new token is added to the range of assets available for trading on Mercury Iconex.

In the initial phase, the number of available buy and sell orders may be limited. As a result, the spread can be relatively wide, and even a smaller market order may have a noticeable impact on the execution price.

As more users become interested in the token, additional buy and sell orders may appear in the order book.

Depending on the balance between supply and demand, this can lead to:

• Greater available liquidity.
• A narrower or, conversely, a wider spread.
• Higher trading volume.
• Changes in the current market price.

It is important to understand that a larger number of buyers does not automatically mean the price will rise. The size and price of the available sell orders also play a role.

The final market price is determined by the transactions that are actually executed between buyers and sellers.

6. What does this mean for you as a Mercury Iconex user?

When trading cryptocurrency via Mercury Iconex, it is wise not to look solely at the displayed market price.

Also, pay attention to the following aspects:

1. Check the trading pair: ensure that you have selected the correct trading pair—for example, BTC/USDT.
2. Examine the order book: check the available buy and sell prices.
3. Note the spread: a wide spread may mean that you receive a less favorable price when executing an order immediately.
4. Check the available volumes: look at how much cryptocurrency is available at the various price levels. 5. Choose your order type carefully: use a market order when you want to trade at the available market prices, or a limit order when you want to set the price yourself.
5. Review your order details: before confirming, check the specified quantity, price, and any applicable fees.

Please note that market prices can change constantly. The final execution depends on the orders available at the moment your order is processed.

Conclusion

The price of a cryptocurrency on an exchange is not determined arbitrarily; it emerges from the continuous interaction between buyers and sellers.

The order book displays the available prices and quantities, while the matching engine connects corresponding buy and sell orders. The most recently executed transaction typically represents the current market price shown.

By gaining an understanding of the bid price, ask price, bid-ask spread, liquidity, and various order types, you can better navigate the Mercury Iconex trading interface and make more informed trading decisions.

Mercury Iconex – The One For All & All For One CEX.

Updated on: 03/11/2026