Half spread cost?

Discussion in 'Order Execution' started by microhft, May 25, 2012.

  1. microhft


    Hi guys,

    Can you explain to me from where this cost comes and how market makers do to earn it.

    I can't find the answer alone because for me the pnl of a market maker should be zero in the average (fees excluded) and the pnl of an agressive order is impacted by the spread.

    On internet someone says: "You pay about half of this spread when you buy and the other half when you sell". Why? It makes no sens....for me at least.

    Example: A market maker who sold a quantity q at price Ask and who is trying to buy back q is going to buy it at price Ask in the average even if he use a limit order.

    Thank you:confused:
  2. a price taker only pays 1 spread for a round-trip. Make your holding period infinitely small, imagine the bid-offer is 100-110. You buy at 110 and sell right after at 100, you paid 10, 1x spread. Clear now?