Half spread cost?

M

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:
 
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?

Quote from 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:
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