Quoted Spread
Quick Reference
| Property | Value |
|---|---|
| Dimension | execution |
| Category | statistics |
| Version | v0.9.0 (Beta) |
| Output Column | quoted_spread |
Quoted spread: best_ask_price - best_bid_price - the immediate cost of liquidity consumption
Formula
best_ask_price - best_bid_price
CDM Inputs
| Column | CDM Table | Description |
|---|---|---|
best_bid_price | cdm_* | CDM source table |
best_ask_price | cdm_* | CDM source table |
Parameters
This FeatureType has no configurable parameters.
Output
Column: quoted_spread
Quoted bid-ask spread in price units
Market Intuition & Trading Rationale
Quoted spread is the simplest measure of execution cost: best_ask - best_bid. It represents the cost a liquidity taker pays to execute one unit immediately — buying at the ask and simultaneously selling at the bid locks in a loss equal to the quoted spread. Liquidity providers earn this spread as compensation for bearing inventory risk and adverse selection.
Unlike effective spread (which measures what takers actually pay), quoted spread measures what the market advertises. The gap between the two reveals execution quality: a tight quoted spread with wide effective spreads means trades routinely walk the book. A wide quoted spread with narrow effective spreads means hidden liquidity or midpoint execution is absorbing flow inside the quote.
Quoted spread moves with market conditions: it widens during uncertainty (news, open/close auctions), narrows during stable periods, and can spike discontinuously when liquidity providers pull quotes en masse (flash events, circuit breaker triggers). In limit order book markets, the quoted spread is the market's "uncertainty barometer" — when it widens, liquidity providers are demanding higher compensation for the risk of being adversely selected.
Usage Cases
- Cost baseline: Use quoted_spread as the theoretical floor for execution cost. Any execution algorithm should compare its achieved effective spread against the prevailing quoted spread — the ratio quantifies price improvement or slippage.
- Liquidity regime classification: Classify market states by quoted spread percentile. The
spread_regime_indicatorandliquidity_regime_classifierFeatureTypes build on this — use quoted_spread as their primary input. - Pair with effective_spread: The ratio
effective_spread / quoted_spreadis the price improvement ratio. Values below 1 indicate healthy execution; values above 1 indicate book walking. Monitor this ratio per venue to detect deteriorating liquidity. - Signal confidence scaling: Wide quoted spreads mean higher transaction costs and noisier price signals. Attenuate alpha signals when quoted_spread exceeds a rolling baseline — the signal must overcome a higher cost hurdle to be profitable.
- Relative spread normalization: Divide by mid_price to get
relative_spread(spread in basis points), which is comparable across instruments. Use quoted_spread for raw cost analysis; use relative_spread for cross-sectional comparison.
YAML Definition
name: quoted_spread
description: 'Quoted spread: best_ask_price - best_bid_price - the immediate cost
of liquidity consumption'
category: statistics
version: v0.9.0 (Beta)
dimension: execution
status: Pre-release
required_inputs:
- best_bid_price
- best_ask_price
output_column: quoted_spread
output_description: Quoted bid-ask spread in price units
parameters: {}
formula: best_ask_price - best_bid_price