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In Financial Derivatives, What Is the Difference between a Quoted Spread and an Effective Spread?

The quoted spread is the difference between the best bid and best offer prices currently displayed on the exchange. The effective spread, however, is the actual cost paid by a trader, calculated as twice the absolute difference between the trade execution price and the mid-point of the quoted spread.

The effective spread is a better measure of actual transaction costs and market quality.

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