“The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency” Can someone explain how the breadth and depth of a mkt affect currency spreads?
All security spreads are affected by these three factors, not just currencies.
Depth If you have very few buyers/sellers that means that currency or any security can fluctuate a lot, which will cause bid/ask spreads to widen. You might have ask come in much different from bid. If there are lot of buyers/sellers chances are that there are bid and ask prices that are very close to each other (narrow spread) Breadth If you have buyer/sellers submitting bid asks that are all over the place you will have wide spread. If everybody is selling or buying at certain price than you would know what asks and bids are so spread would narrow. Hope this helps
so the breadth is the general trend of diff spread sizes?