The difference between trade price and midpoint. That is, it is the difference between the price at which a dealer (or a market maker) buys (sells) a security/investment and the price at which the dealer subsequently sells (buys) it. In calculation, it is twice the absolute value of the difference between the actual trade price and the midpoint of the market quote (i.e., between the quoted bid price and the quoted ask price), divided by the midpoint between these two prices. This implies that it is two times the deviation of the latest trade price from the midpoint of the market quote at the time an order is placed.

The effective bid-ask spread measures, in percentage terms, the extent by which the latest realized price departed from the simple midquote. It helps measure round-trip transaction costs for an average-size order. It accounts for both price improvement and market impact.