Free lesson · Arbitrage

Bid, ask and the gross-to-net waterfall

Open interactive lessonPractice calculationsExplore labs

A price difference matters only at prices and quantities available for an actual purchase and sale.

Buy at the cheap ask and sell at the rich bid. Match currencies and multipliers, then count fees, borrowing, financing, slippage and transfer charges.

Flat charges spread across size while impact often increases. Synchronized quotes and depth are required; stale midpoints cannot establish an executable bound.

Apply it in a strategy

• Reject weak opportunities with attainable costs before building a predictive model.
• Record the input timestamp, executable quantity, currency and horizon. Reconcile the result with a cash-flow or state table.
• Stress this failure condition: One filled leg and one failed leg leave directional inventory outside this matched-leg calculation.

Research deliverable

Build and explain a bid, ask and the gross-to-net waterfall worksheet. Reject weak opportunities with attainable costs before building a predictive model.

Evidence boundary: Synthetic arithmetic and scenarios illustrate mechanics. They are not historical returns, a paper replication, or evidence of an executable edge. Research sources and their access limitations are recorded at the end of this module.

# Python 3.10+; standard library unless NumPy is imported below.
# Inputs and outputs use the units defined in this lesson. Synthetic teaching example.
def net_edge(q,bid,ask,variable,fixed):
    if min(q,bid,ask,variable,fixed)<0: raise ValueError("Nonnegative inputs required")
    return q*(bid-ask-variable)-fixed

print(net_edge(50,100.35,100.10,.08,5))