If transaction size is low, shouldnt the spread be high? and vice versa. I read this in the Schweser and didnt understand how this could be true.
Seems odd.
When transaction size is big, you are taking on additional risks of carrying too much currency or having too little currency to sell so naturally you would want to be compensated for the risks and pay less (lower bid) or charge higher (higher ask) and hence wider spread for the currency.
It’s harder to sell 10m shares of MSFT, than 10 shares.
I find it odd too as retails banks give a lower spread if the transaction size is large.
It’s one of those things we need to remember.
It makes sense with the above way of thinking about it, if you think about it in terms of risk. The more currency on your books, the more exposure, the more risk and the higher the bid-ask spread.