Spreads in crypto and equities offer one example of a return to normalcy

It has been months since the Covid-19 economic and health crisis first gripped global markets, and it's not clear when our personal or professional lives will begin to look normal again. 

In the U.S., some states have begun reopening, allowing small gatherings to resume and restaurants to reopen at limited capacity. On Wall Street, the New York Stock Exchange has outlined a plan to reopen its trading floor on May 26 with social distancing and other health safety measures. Meanwhile, banking operations in Hong Kong have slowly begun to bring people back to work.

Although most Wall Streeters haven't yet returned to their offices – and in many cases are still hunkered down in their suburban homes – one market measure shows things are close to normal. As noted by research that Goldman Sachs shared with clients on Wednesday, bid-ask spreads are close to where they were at the end of February. 

The "bid-ask" represents the difference between the price at which a seller wants to sell an asset and the price at which a buyer wants to buy an asset. During times of heightened volatility, bid-ask spreads typically increase (or widen to use the proper parlance). Market makers, who step in to provide liquidity to market participants, will also widen the spread between the bid and ask price they quote to compensate for the risk of trading in a more volatile environment.

The following graph illustrates the widening of spreads throughout March and April in the S&P500, Eurostoxx, and FTSE. 

In the S&P 500 index, the median stock bid-ask spread has tightened from more than 22 basis points in mid-March to just over six in May. That tightening has been complimented by a decline in volatility across markets. The VIX–Wall Street's fear gauge— has fallen from highs above 80 in March to 27, at last check. 

Indeed, a similar situation has played out in the cryptocurrency market, with bid-ask spreads largely returning to normal, according to B2C2 founder Max Boonen.

The tightening of spreads may not be a welcomed development to some in the high-speed trading community, which has seen firms experience "some of their best months in years," as one broker put it in a March Wall Street Journal article. HFTs and market makers can profit off of these spreads, leveraging sophisticated algorithms and computer systems.

Virtu Financial, one of the most well-known market makers and HFTs, reported an impressive earnings beat at the beginning of the month, fueled in part by the unprecedented market volatility. As reported by Reuters, net trading revenues for the first quarter of the year more than tripled from a year prior to $802.5 million.

As for crypto, Bitfinex CTO Paolo Ardoino noted that it has been a pretty calm period for the market.