Reference Q7(i)(b) Sept 2009 Answer: 'The b/o spread will be larger on a £1bn trade than a £100m trade'. Why? Of course, the absolute cost will be more for the larger trade, but this suggests the cost will be a larger proportion of the larger trade also, ie the bid offer spread is wider as the size of a trade increases. Am I just mis-interpreting the answer?
Hi. The idea is that the bid-offer spread will be a function of the liquidity of the market. The larger trade may be more illiquid and hence the spread may widen. So, higher costs in absolute and relative terms!
