Why Is the Effective Spread Considered a More Accurate Measure of Trading Cost than the Quoted Spread?

The quoted spread only reflects the best available prices at a single point in time, assuming a small trade. The effective spread captures the actual cost of execution, factoring in the price at which the order was actually filled.

If an order causes price impact or slippage, the effective spread will be wider than the quoted spread, providing a more realistic assessment of the total transaction cost.