Filter by Categories
Accounting
Banking

Exchanges




Effective Spread


A spread that is equal to twice the difference between the midpoint of the bid-ask spread and the price paid (or received) by market participants/ traders. A low measurement of this spread does not indicate a better market liquidity, due to the fact market liquidity is also impacted by the dollar value of the security traded, a trade’s completion time, and slippage in price, etc. However, and with everything else held constant, a better liquidity may materialized if a higher effective spread is accompanied by a larger volume traded in a very short period of time.

An effective spread is a measure of trading costs (as it captures the difference between the price at which a market order is executed and the midquote price). Consequently, it provides a general estimate of the cost of trading based on a benchmark price (represented by the midquote price).

It is also known as an effective bid-ask spread.



ABC
This section covers a wide-ranging array of terms and concepts, among others, in the area of exchanges and financial marekts at large ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*