The effective spread for a sell order is twice the midquote of the market bid and ask prices minus the execution price.
The midquote for each trade is calculated as:
|
Time of Trade |
Midquote |
|
10 a.m. |
($10.07 + $10.00) / 2 = $10.035 |
|
12 p.m. |
($9.96 + $9.90) / 2= $9.93 |
|
1 p.m. |
($9.94 + $9.88) / 2 = $9.91 |
The effective spread for each sell order is:
|
Time of Trade |
2 x (Midquote – Execution Price) = Effective Spread |
|
10 a.m. |
2 x ($10.035 - $9.98) = $0.11 |
|
12 p.m. |
2 x ($9.93 - $9.92) = $0.02 |
|
1 p.m. |
2 x ($9.91 - $9.91) = $0.00 |
The average effective spread is ($0.11 + $0.02 + $0.00) / 3 = $0.0433
