R31 Execuetion of Portfolio Decision

Question 1

What is Quoted Spread

Answer 1

Quoted spread is the difference between bid and ask at the time when the order is entered

Question 2

What is Effective Spread

Answer 2

It is the difference between the price at which the trade was executed and the mid quote of bid and ask at the time when order was placed times 2

for buy transactions Effective spread = 2 x ( Execution price - Midquote)

for sell transactions = 2 x (Midquote - Execution price)