In Futures Contracts, How Is the Effective Spread Calculated When Trading a Large Block?
When trading a large block of futures, the effective spread is calculated similarly to other derivatives. It is twice the absolute difference between the execution price and the mid-price of the market's best bid and offer at the time the order was submitted.
However, for block trades, the execution price is often negotiated privately and reported after the fact, potentially allowing for a price that is better than the visible order book, thus narrowing the effective spread.
Glossar
Block Trade Execution
Execution ⎊ Block trade execution within cryptocurrency derivatives signifies the coordinated facilitation of large-volume transactions, often exceeding typical exchange liquidity, minimizing market impact through strategic order placement.
Effective Spread
Calculation ⎊ The Effective Spread measures the true cost incurred when executing a trade by comparing the realized execution price against the midpoint of the bid and offer prices prevailing just before the order interaction.
Large Block
Scale ⎊ Large Block transactions, within cryptocurrency networks, represent aggregated transaction data exceeding typical block sizes, impacting network throughput and propagation times.