The portion of the effective spread a liquidity provider actually keeps, measured by comparing the fill price to the midpoint a set interval later.
Effective spread minus realised spread is the price impact of the trade, which is the piece the provider gives back to informed traders. It is the cleanest available measure of adverse-selection.
A market maker with a healthy effective spread and a negative realised spread is not a market maker; it is a donor. The standard intervals are five seconds, one minute and five minutes.
Example: a maker buys at 20.00 against a 20.02 midpoint, so the effective spread captured is 4 cents. Five minutes later the midpoint is 19.995. Realised spread is 2 x (19.995 - 20.00) = negative 1 cent. The 4 cents looked like profit; 5 cents of impact turned it into a loss.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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