EffectiveSpread

Description

EffectiveSpread is twice the absolute distance of the trade price from the mid-quote at trade time,

effective = 2 * |price - mid|.

It is the round-trip cost actually paid relative to the mid: a buy lifts the offer and a sell hits the bid, so the print sits away from the mid by about half the spread. Unlike the quoted spread it reflects where trades really occur, including price improvement and trading through the quote. Pair it with RealizedSpread to split that cost into a realized (liquidity) part and a price-impact (adverse-selection) part.

Examples

Usage plot

import numpy as np
import plotly.graph_objects as go
from plotly.subplots import make_subplots
from screamer import EffectiveSpread

rng = np.random.default_rng(1)
n = 250
mid = 100 + np.cumsum(rng.standard_normal(n) * 0.02)
half_spread = 0.10
price = mid + rng.choice([-half_spread, half_spread], size=n)   # trades at bid or offer
eff = EffectiveSpread()(price, mid)

fig = make_subplots(rows=2, cols=1, shared_xaxes=True, row_heights=[0.6, 0.4],
                    vertical_spacing=0.08)
fig.add_trace(go.Scatter(y=mid, mode='lines', name='mid', line=dict(color='steelblue')),
              row=1, col=1)
fig.add_trace(go.Scatter(y=price, mode='markers', name='trade price',
                         marker=dict(color='lightslategray', size=4)), row=1, col=1)
fig.add_trace(go.Scatter(y=eff, mode='lines', name='effective spread',
                         line=dict(color='crimson')), row=2, col=1)
fig.add_hline(y=2 * half_spread, line=dict(color='gray', dash='dot'), row=2, col=1)
fig.update_layout(title='EffectiveSpread: 2*|price - mid|, the cost paid per trade',
                  yaxis=dict(title='price'), yaxis2=dict(title='eff. spread'),
                  margin=dict(l=20, r=20, t=60, b=20), legend=dict(orientation='h', yanchor='bottom', y=1.02, xanchor='right', x=1))
fig.show()