Spread series: the dataset nobody studies

[Fairman]

Spread series: the dataset nobody studies

Traders spend hours on price and almost none on spread. Yet the spread is a time series with structure of its own.

A week of recorded spreads for a pair shows a daily rhythm: tight during the busy sessions, wide in the dead zones, with spikes at rollover and around news. It also shows how quickly it recovers after a spike and how often it makes short unexplained jumps.

Useful statistics include the median, the 95th percentile, and the duration of wide spells. The median says what trading usually costs. The 95th percentile says what it costs when things go wrong.

Strategies are often tested with the median or a fixed spread, missing the fat tail. The trades that matter most for the bottom line, entries at the worst moments, occur in the tail.

Recording the spread at every tick and storing it with the price makes tests far more realistic. Some brokers provide this history, and a platform's own recording is also fine.

An easy chart: median spread by minute of the day, with the 5th and 95th percentile bands. It takes a few lines of code and makes the structure of costs visible at a glance. Many traders keep it pinned above the desk after seeing it once.

What is the 95th percentile spread on the main pair during the hours traded?