hard · Market Microstructure
A buyer purchases 1,000 shares of XYZ at 30.08 when the National Best Bid and Offer (NBBO) is 30.04 bid and 30.08 offer. Five minutes after the trade, the midpoint has shifted to 30.10.
What is the realized spread for this transaction, and what does it indicate about the dealer's outcome?
- 0.02; the dealer achieved positive alpha against the market move.
- 0.04; the dealer earned a profit equal to the effective spread.
- -0.04; the dealer suffered a loss due to adverse selection.
- -0.08; the dealer lost the entire width of the quoted spread.
Sign up free to see the explanation and track your rank →
More Market Microstructure practice
- A stock is quoted at $50.00 bid x $50.10 ask. A buyer submit… — How does this action affec
- A stock is trading at $100.00. The Level 1 S&P 500 Market-Wi… — What is the status of trad
- If the stock price drops instantly from $50.05 to $49.00 in a 'flash crash,' what happens
- Under the National Market System (Reg NMS), if Exchange A is quoting a stock at $10.00 x
- If the stock gaps down and opens at $69.50 on Tuesday morning, at what price will the trad
- If the dealer uses a quote shading parameter of κ = 0.00004 to manage inventory, what is t
- A trader places a large sell order for 50,000 shares at $50.01 only to cancel it immediate
- Using the Lee-Ready algorithm, how should a trade occurring at $50.10 following a $50.00 t