Can effective spread go negative? For example: Suppose a trader is quoted a market bid price of $11.50 and an ask of $11.56. Calculate and interpret the effective spread for a buy order, given an executed price of $11.52. Calculation: Mid Price: (11.56+11.50)/2 = 11.53 (11.52-11.53)*2 = -0.02 => Effective spread - 0.02 Howerver, quote spread must positive. (Offer - Bid price). Is above correct?
Seems correct to me
IMO only absolute values are relevant as well as knowing if the executed P was above or below the MidQuote.
I believe the spread is an abosolute figure.
I don’t see how an absolute figure would be accurate. Consider the below:
Bid - ask = 50 - 60
I have an amazing dealer and buy at 50
My effective spread is -10, quote spread is 10
If we take the absolute value, it looks like I haven’t got an amazing deal.
^ Agree. Should not be absolute.
Negative effective spread means execution price beat the mid price. It’s possible.
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