Where the Spread Comes From
The spread can compensate for order-processing costs, inventory exposure, adverse selection, tick constraints, competition, and venue economics.
Central questions
- Which costs are fixed, state-dependent, or informational?
- What changes when tick size binds?
- Why is a realized spread smaller than the quoted spread after adverse price movement?
Planned model
Turn individual cost and risk components on and off and show how break-even quotes and realized maker economics change.