Effective Spread
Effective Spread — Round-trip cost measured from mid to trade price.
Definition
Effective Spread refers to round-trip cost measured from mid to trade price. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Price formation at the venue layer decides whether a signal survives implementation. When round-trip cost measured from mid to trade price shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what effective spread is saying. If round-trip cost measured from mid to trade price moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Measure spread, queue, and impact at your size; paper fills are not a desk edge. Prefer a short written null hypothesis for Effective Spread: what would falsify the current reading in the next window?