How the effective spread can be gamed?

Does it depends upon benchmark selected?

Or does it depend upon liquidity offered by trader?

Can anybody explain?

effective spread cab be gamed by waiting for trader to come to him

Bid 10.3 Ask 10.9

Mid quote = 10.6

quoted spread = 0.6

Effective spread = 2 (execution price - mid quote)

suppose buyer is looking to avoid execution uncertainity & fulfills order at ask 10.9

so effective spread = 2 (10.9 - 10.6) = 0.6

If he chooses to wait till the time seller revises his price downward & send an order at current bid price in order to seek liquidity

Effective spread = 2 (10.3-10.6) = - 0.6

which is -ve. If the trader is benchmarked against effective spread which is -ve. So he did well

Thanks once again rahul.

(It’s going to be a long journey in this last volume of the curriculum…and I heard that GIPS is very nice for headaches…)

thanks!..also kindly help me understand how a negative effective spread is a good thing?

meshed, with a negative effective spread he actually bought below mid quote (the ‘benchmark’).

Thanks Rahul