Realized Spread
Realized spread estimates how much of the spread a liquidity provider earns after short term price movement.
Definition
Realized spread is a microstructure metric that compares execution price to a later reference price, helping separate pure spread capture from adverse selection. It is often discussed alongside effective spread.
Why it matters
Realized spread helps explain whether spreads represent true compensation or whether prices move against the liquidity provider after fills. In thin markets, adverse selection can be large.
Common pitfalls
Using unstable reference windows: The choice of time window matters.
Mixing with fees: Keep trading fee separate from microstructure metrics.
Learn more
For deeper examples and definitions, see EffectiveSpread.com.