How Does Order Size Influence the Effective Spread Experienced by a Derivatives Trader?

Larger order sizes generally lead to a wider effective spread. A small order can be filled entirely at the best bid or offer, making the effective spread close to the quoted spread.

A large order, however, must consume multiple levels of the order book, moving the execution price away from the best quote. This "walking the book" results in a higher average execution price and a significantly wider effective spread.