The quoted bid-ask spread is not a single fee — it is a bundle of three economically distinct components that a market maker must price separately. Order processing cost covers technology, exchange fees, clearing, and the cost of capital tied up in quotes. Inventory risk premium compensates the maker for holding unwanted positions between trades. Adverse selection cost is the expected loss to informed traders who pick off stale quotes. A maker who quotes a single blended number is implicitly cross-subsidizing one component with another.

Decomposition matters because each component responds to different conditions. Volatility widens the inventory and adverse-selection components but barely touches processing cost. Competition from other makers compresses all three toward the processing floor. This is why spreads on liquid large-caps approach a few basis points while small-caps stay wide even with identical technology.

Processing cost: fixed per-trade, scales with volume not volatility
Inventory premium: scales with position size, holding horizon, and asset variance
Adverse selection: scales with the fraction of informed flow and information arrival rate

Component	Driver	Typical share (liquid equity)
Order processing	Fees, tech, capital	~20%
Inventory risk	Volatility, horizon	~30%
Adverse selection	Informed flow	~50%