Effective Spread

It's a measure of trading costs, defined as the difference between the price at which a market order executes and the mid-quote on the market the instant before.

Formally we have:

Se? d(p-m)

where: Se is the absolute effective spread, d is the order directionindicetor (1 for buyer-initiated and -1 for seller-initiated trades), m is the mid-quote on the market prior to the transaction executed at price p.

Editor: Maria Francesca NUZZO

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