What is spread?
When you make any currency exchange within your CoinJar you'll encounter two sets of prices - a buy price and a sell price. These prices are determined by CoinJar, and are regularly adjusted based on market conditions.
The difference between the buy and sell price is known as the "spread", and makes it possible for CoinJar to provide instant and seamless transfers as a market maker. Spread is completely separate from transaction fees, which may also be applied for certain transfers.
The midpoint can be thought of as the average of the buy and sell price for a particular currency - it's the midpoint within the Spread. Midpoint rates are used throughout CoinJar to provide a point-in-time estimate of the value of each account, in a familiar currency.
You can choose your reference currency within the Settings page, and from then on you'll see an estimate of that currency equivalent for each of your digital currency accounts within CoinJar.
The digital currency accounts within CoinJar uses midpoint rates to provide an estimated value for the funds in that account. However, when you are trading you use CoinJar's buy price when buying, and CoinJar's sell price when selling.
This can appear to cause a discrepancy when comparing the amount you've just exchanged to the estimate value as shown in that digital currency account.
For example, if you purchase a bitcoin for $1,000 using the buy price of 1 BTC = $1,000 AUD, that 1 BTC will instantly show up in your Everyday Bitcoin with an estimated value lower than $1,000. This is because the estimated value is calculated using the midpoint rate - not the buy price.
CoinJar allows you to transfer between accounts and currencies instantly and seamlessly. Using CoinJar, you don’t have to find another willing trader to sell that bitcoin to you - the trade is fulfilled instantly.
In order to do this, CoinJar plays the role of both the buyer and seller simultaneously. This is known as being a 'market maker'.
Paraphrasing from a document published by the UK Government (Minimum obligations of market makers):
[A market maker] is not much different than a grocer except she buys and sells [bitcoin] instead of vegetables. Without grocers, consumers of vegetables would have to buy directly from farmers. What if the farmer isn’t selling when consumers are buying or vice versa?
If there are lots of consumers and farmers in an area then the timing problem is mitigated. Otherwise a grocer can solve the timing problem by providing immediacy for both the farmer and consumer. Similar to a grocer a [bitcoin] market maker buys stock from sellers by bidding for them and sells to buyer by offering to sell to them. As with vegetables, if there are lots of buyers and sellers of stocks then a market maker is not necessary.
Market makers have existed for as long as stocks have been continuously traded.
Updated: 15 Mar 2018 (AS)
Reviewed: 15 Mar 2018 (AS)