A market can show a tight spread and still be expensive to trade. The quote tells you the price available for the first units. Your result depends on how many units you need and what happens to the book while the order executes.
The price of the whole order
The highest resting buy price is the bid; the lowest resting sell price is the ask. Their difference is the spread. The midpoint sits halfway between them and is a useful reference, although you cannot assume someone will trade with you there.
Suppose the best bid is $99.90. Sellers offer 10 units at $100 and another 20 at $100.20. A market buy for 30 units takes both levels:
Cost = 10 × $100 + 20 × $100.20 = $3,004.
Average fill = $3,004 ÷ 30 = $100.1333.
The screen’s $100 ask was real, but only for 10 units. Relative to that ask, the larger order paid an extra $4. Relative to the $99.95 midpoint, it paid $5.50. Both calculations are legitimate; they answer different questions. “Slippage” needs a named benchmark.
Spread, depth, and replenishment
Spread measures the gap at the top. Depth measures the quantity available at successive prices. A fixed-size execution estimate walks through those prices, as in the example. CME’s liquidity methodology treats these as separate measures for good reason.
There is another dimension: how quickly liquidity returns after being traded. Ten units offered repeatedly can absorb more buying over a minute than 100 units that disappear when the first order arrives. CME’s liquidity research shows why a snapshot of displayed depth can miss this replenishment.
This also explains why a large visible bid is not a promise of support. Its owner can cancel or move it before your order reaches the market. A small quote need not mean the market is unusable, and a large quote need not mean it is safe to trade any size. Observe actual fills and how the book behaves after them.
Immediate execution or a price limit
A market order prioritizes immediate execution, subject to the venue’s protections. A limit order sets a price boundary. In our example, a buy limit of $100.10 can immediately take the 10 units at $100, but cannot take the offers at $100.20. A $100.20 limit could fill all 30 if those offers remain available.
The remaining quantity depends on the order’s instructions. It may rest, be cancelled immediately, or cause the order to fail if partial execution is disallowed. A limit price controls the worst permitted fill price; it does not guarantee completion.
Splitting the order gives liquidity time to replenish, but the market may rise while you wait. Paying for immediate execution can be rational when the reason for trading is time-sensitive. Waiting can be rational when the idea remains useful at a later time. The decision is about the cost of delay as well as the spread.
Measuring execution cost
Record the decision-time quote, quantity, actual fills and explicit fees. For a buy, execution cost against the decision midpoint is quantity multiplied by average fill minus midpoint. Use the opposite sign for a sell.
Your trading PnL calculated from actual fills already includes the price you paid for spread and slippage. Subtracting a separate slippage estimate again would count it twice. Keep the estimate to diagnose execution; use fills, fees and financing to reconcile the account. After several comparable trades, you can see whether order size, time of day or urgency is doing most of the damage.