Proportional Spread

外汇网2021-06-19 16:25:12 38

A measure of a security's liquidity that is calculated by comparing the bid and ask prices quoted in the marketplace. The proportional spad is higher as liquidity decreases to compensate the dealer for the additional risk of creating a market in an illiquid security.

The proportional spad is calculated as the difference between closing ask and bid prices pided by the average price of the bid and ask.

Ask = Highest close in month

Bid = Lowest close in month

Also referred to as a proportional bid-ask spad.

Taobiz explains Proportional Spad

The proportional spad is used to give an idea of the average round-trip transaction compensation to dealers. The average transaction cost to the investor is calculated as one-half of the proportional spad. In general, proportional spads can range from less than 1% to over 5%. For example, the average proportional spad on the New York Stock Exchange was 0.6% in 2003.

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