In Which Derivatives Markets (E.g. Futures, Swaps, Options) Is the Cost of Immediacy Generally Highest? ⎊ Path

In Which Derivatives Markets (E.g. Futures, Swaps, Options) Is the Cost of Immediacy Generally Highest?

The cost of immediacy, reflected in the bid-offer spread, is generally highest in less liquid and more complex derivatives markets. This typically includes long-dated options, options on less popular altcoins, or bespoke over-the-counter (OTC) derivatives like certain swaps.

The low volume and high complexity mean market makers face greater inventory and adverse selection risks, demanding a wider spread as compensation.

Why Are Standardized Options Contracts More Liquid than Customized OTC Options?

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How Does a Change in the Risk-Free Rate Affect the Theoretical Price of a Long-Dated Crypto Option?

Why Is a Long-Dated ITM Option Sometimes Referred to as a Synthetic Stock Position?

How Does the Concept of “Carry” Relate to the Pricing of Long-Dated Crypto Futures and Options?

How Does Competition among Market Makers Reduce the ‘Cost of Immediacy’?

Is Roll Risk Higher for Short-Dated or Long-Dated Contracts?

Glossar

Cost of Immediacy

Pricing ⎊ Cost of Immediacy reflects the premium paid, often manifested as adverse selection or slippage, to execute a trade instantaneously against the prevailing limit order book, rather than waiting for passive execution at the midpoint.