What does it cost to trade when the spread, the impact of size, and the simple fact of being seen are counted separately? This note separates those costs, using a displayed bid in SPY as the public example, and explains why a last price leaves them out.
Three different costs
The spread is the distance between the best bid and the best offer. Someone who buys at the offer and sells at the bid pays that distance for immediacy, even if nothing else moves. Impact is the extra distance paid when the order is larger than the size at the inside and must walk to worse prices, or when the book retreats as the order is noticed. Being seen is the cost that comes from posting at all: other participants can react to a visible order before it trades. These are not three words for one thing. A study that adds them into a single friction number has to say so, because the remedies are different.
A last-trade print contains none of this breakdown. The print is a result after the costs have already been paid or avoided. Two trades at the same price can have different stories, one that lifted an offer and one that waited as a bid. The tape's price is the same. The path was not. Any note about the cost of trading that starts from last prices alone has skipped the book.
The spread is the price of immediacy at the inside market. Impact is the extra price of size. Being seen is the cost of showing an order that other participants can react to before it fills.
A displayed bid in SPY
SPY is a very liquid public fund, which is why it is a harsh example rather than a gentle one. Even there, the spread is a real distance, usually small and still a distance. A trader who needs to buy immediately pays the offer. A trader who posts a bid at the best price, or joins the queue, hopes to buy without paying the offer, and pays instead with time and with visibility. The posted bid can be filled by a seller, or it can sit while the offer drops away, or it can be canceled. The cost of being seen is the information given to everyone else by the act of posting.
Impact shows up when the size exceeds what the inside is advertising. A small buy may lift one offer. A large buy may lift several levels, so the average price is worse than the first offer. That difference is impact from walking the book. A further effect appears if other participants cancel or reprice once they see the order or the prints. The large order did not only consume the size that was there. It changed the size that stayed. SPY makes this easier to talk about because the book is deep and public. Depth reduces the walk. It does not repeal it, and it does not make a visible order invisible.
Hiding is itself a tradeoff, not a free repair. Some venues and order types offer less display. Less display can mean less information given away and also less priority or a different chance of filling. This note does not survey those types. It only insists that being seen has a cost, so reducing what is shown is a decision with a cost of its own. A displayed SPY bid is the simple case: the order is on the book, the queue can react, and the reaction is part of what the sender should expect.
Why the breakdown matters
A rule that looks attractive on midpoint prices can be unattractive once the spread is paid on every turn. A rule that looks attractive in small size can be unattractive once impact is included. A rule that depends on posting can be unattractive once other people can see the post. Collapsing those into one assumed slippage figure hides which problem the rule actually has. The figure may still be used, but the note should say which of the three costs it is standing in for.
The SPY bid is an illustration of a public book, not a suggestion to post one. Spread, impact, and visibility are the vocabulary of the cost of trading. A last price is the vocabulary of the result. Reading only the result is how a cost becomes invisible.
This piece does not claim a typical cost, a better order type, or a result for any rule. It separates three costs that a last-trade price mixes together, using a displayed bid in a liquid public fund as the picture.
