Ok, so the 2 formulas…
Effective spread for a buy order = 2 * (execution price - midquote)
Effective spread for a sell order = 2 * (midquote - execution price)
Why is it in that order for the execution price and midquote for the buy and the sell?
I’m assuming it has to do with the effective spread always having to be positive, since the dealer has to make money somewhere.
Thanks!