Curriculum/bid-ask-spread
Bid-Ask Spread
market microstructure·L0 · atom·stub
Replacesthe belief that the spread is fixed cost.
Quoted spread is the visible best-bid-vs-best-ask gap; effective spread is the realised cost of a market order (which can cross multiple levels under thin liquidity); micro-price is the size-weighted midpoint that predicts the next trade's direction. The three numbers diverge under stress, and the divergence is the load-bearing signal.
Prerequisites
Unlocks
Bridges
- transaction-cost-decompositionshared measurementTransaction cost decomposition (implementation shortfall) splits realised cost into spread + impact + opportunity. The spread term is this card's quoted vs effective gap; the impact term is the next card.
- adverse-selection-glosten-milgromshared failure modeThe spread widens when market makers expect informed flow. Glosten-Milgrom 1985 derives the equilibrium spread as a function of the informed-trader probability — the spread is the MM's insurance premium.
This concept is a node in the curriculum DAG. The full lab — page blocks, done state, references — has not been authored yet. The relations above describe where it sits in the graph.
Author at: content/concepts/bid-ask-spread/card.ts