What is Effective Spread
Effective Spread measures the distance from the midpoint of the market at the time when your order is entered to the execution price you receive. This value is doubled to capture the whole bid/offer spread.
A stock is quoted with a bid of $10.00 and an ask of $10.04 at the time your order is entered. The quoted spread is $0.04. The midpoint price is $10.02 and your buy order is executed at $10.03. The difference between the midpoint ($10.02) and your execution price ($10.03) is $.01. This value is doubled, so the effective spread on your order is $.02. The lower the effective spread value, the better.
Effective Spread calculates how much above the midpoint price you paid on a buy order and how much below the midpoint price you received on a sell order.
Executions represent SEC Rule 605 eligible market orders between 100-1,999 shares executed as agent through third-party market makers and listed exchanges and as principal by NFS-affiliated desks. Analysis includes only those exchanges or market makers receiving at least 2% of Fidelity Brokerage Services, LLC monthly Nasdaq and Listed share volume.
Source: TTA (Thomson Transaction Analytics)