Width (Tightness)
Market Microstructure glossary · Market Microstructure Fundamentals
Definition
The cost per unit of trading a given size. For small trades, approximated by the bid–ask spread.
Width (Tightness) in plain English
Width is really just asking: how expensive is it to trade right now? Every market has two prices at once — the highest price a buyer will pay (the bid) and the lowest price a seller will accept (the ask) — and the gap between them is the bid–ask spread. Think of a currency-exchange booth at the airport that buys dollars for 90 cents and sells them for $1.10: that 20-cent gap is the cost you eat just for stepping in and stepping back out. A 'tight' (narrow) market has a small gap and is cheap to trade; a 'wide' market has a big gap and stings more, and for small trades that spread is a good stand-in for the whole cost.
Also called: Tightness
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