Question

Briefly discuss the difference between the following pair: Quoted spread and effective spread

Answer 1

Quoted spread is the spread between the bidding price and the selling price of any stocks which has been quoted on the stock exchanges.it is the spread which is used by the large number of market participants while trading stock in the stock market.

Effective spread is the difference between the price of newly issued stock and its actual price with an adjustment for the effect of offering announcement.

Effective spread over quoted spread results in percentage representing how much price improvement an order received.

Quoted prices will mean that cost of completing a round trip of trade , if the threads are executed the quoted price whereas effective spread will be resulting into price improvement of an order received.

There is a wider applicability of quoted spread than effective spread.