Hi,
I have a hard time to see the difference between the curriculum (exhibit 2 + exhibit 3) and the application to a vignette case (Q1 of ahmed)
In the reading 29 (page 12) , one is given the following information
"With the information in exhibit 2 (10h03:14), a trader with instruction to buy enters a market order for 500 shares "
Exhibit 2(10h03:14) : Bid Price = 19.97 Ask Price = 20.03 (=> Midquote = 20.00 )
Exhibit 3 shows the market bid-ask at 10h03:18 when the order is executed
Exhibit 3 (10h03:18): Bid Price = 19.97 Ask Price = 20.01 (=> Midquote = 19.99 )
The effective spread is then calculated based on the midquote of 20.00
Now in the Ahmed case, one is given the following information :
Ahmed asks Norsk to execute is a purchase of 2,000 shares of BDF
Norsk reviews the current limit order book for BDF, which is shown in Exhibit 1
Exhibit 1 (truncated here) Time =11h15:08 Bid=15.42 Ask = 15.48 => Midquote = 15.45
Norsk was able to fill the order for BDF during the day by executing the trades shown in Exhibit 2
Exhibit 2 (truncated here) Time of Trade =11h15:09 Bid=15.38 Ask = 15.46 => Midquote = 15.42
The effective spread is then calculated based on the midquote of 15.42 and not 15.45
I really do not understand why in the readings the effective spread is computed based on the first exhibit (time the order was entered) and in this exercice, it is computed based on the “time of the trade”
Does “time of the trade” means “time the order was entered”?
It seems it is the time the order was executed no?
Can someone help me clarify this point?