EffectiveSpread

The realised round-trip cost of a single trade, measured as twice the signed distance of its price from the prevailing mid, in basis points. The execution-quality counterpart to the quoted spread.

Quick reference

Item	Value
Family	Microstructure
Input type	TradeQuote — a trade plus the mid prevailing at execution
Output type	f64 (basis points)
Output range	unbounded; positive when the aggressor pays
Default parameters	none
Warmup period	1
Interpretation	Execution cost / spread capture

Formula

effectiveSpread = 2 · D · (tradePrice − mid) / mid · 10_000   (bps)

D is the aggressor sign (+1 buy, −1 sell). The factor of two scales the one-sided deviation to a full round-trip, so a marketable order filled exactly at the touch of a book whose quoted spread is S pays an effective spread of S. Stateless and O(1). See crates/wickra-core/src/indicators/effective_spread.rs.

Parameters

None. Construct with EffectiveSpread::new().

Inputs / Outputs

Indicator<Input = TradeQuote, Output = f64>. The bindings take a trade plus its mid as four scalars: update(price, size, is_buy, mid). Python / Node batch accept four equal-length arrays (price, size, is_buy, mid) and return a 1-D array of basis points. WASM is streaming-only.

Warmup

warmup_period() == 1; emits on the first trade-quote.

Edge cases

• Price improvement. A buy filled below the mid (or a sell above it) reads negative — the aggressor was paid rather than charged.
• Trade at the mid. Reads exactly 0.
• Mid validity. The mid must be finite and strictly positive; the constructor of TradeQuote enforces it, and the bindings raise on a non-positive mid.

Examples

Rust

use wickra::{EffectiveSpread, Indicator, Side, Trade, TradeQuote};

let mut es = EffectiveSpread::new();
let trade = Trade::new(100.05, 1.0, Side::Buy, 0).unwrap();
let quote = TradeQuote::new(trade, 100.0).unwrap();
assert!((es.update(quote).unwrap() - 10.0).abs() < 1e-9); // 10 bps

Python

import wickra as ta

es = ta.EffectiveSpread()
print(es.update(100.05, 1.0, True, 100.0))  # 10.0 bps

Node

const { EffectiveSpread } = require('wickra');

const es = new EffectiveSpread();
console.log(es.update(100.05, 1, true, 100.0)); // 10 bps

Interpretation

The effective spread is what the aggressor actually paid, measured against the mid prevailing at the instant of the trade.

• Positive. The normal case — the aggressor crossed the spread and paid for immediacy. The larger the number, the worse the fill.
• Near zero or negative. Price improvement: the fill landed inside the quote, or even on the passive side of the mid. Common with midpoint-matching venues and hidden liquidity.
• Versus the quoted spread. If the average effective spread is below the quoted spread, your flow is getting price improvement; if it is above, you are walking the book. This ratio is the core of transaction-cost analysis.

Averaged — ideally volume-weighted — over many trades it is the standard execution-quality metric venues and brokers report.

Common pitfalls

• Per-trade, not a rate. A single reading is one fill's cost. Aggregate it yourself — volume-weight a window — for a venue- or strategy-level estimate.
• Mid quality drives it. The result is only as good as the mid you pass; a stale or one-sided mid distorts every reading. Use the mid that prevailed at execution, not the next tick.
• Sign depends on the aggressor flag. The convention charges the aggressor (positive = cost); a mislabelled side flips the sign, turning costs into apparent improvement.

References

• Charles M. C. Lee and Mark J. Ready, Inferring Trade Direction from Intraday Data, Journal of Finance, 1991 — trade signing.
• Roger D. Huang and Hans R. Stoll, Dealer versus Auction Markets, Journal of Financial Economics, 1996 — the effective/realized spread decomposition.
• Hendrik Bessembinder, Issues in Assessing Trade Execution Costs, Journal of Financial Markets, 2003.

See also

• QuotedSpread — the standing spread at the touch.
• RealizedSpread — effective spread net of price impact (the maker's take).
• KylesLambda — price impact per unit of signed flow.
• Indicators-Overview — the full taxonomy.