bid/ask dilemma

[botpro]

If, and only if, there is someone selling at $3 can you probably get it
("probably" because many others would like to get it too at that cheap price... but only the first one wins...)

Learn how the orderbook functions. it is very simple:
- sellers ask for a high price
- buyers want it as cheap as possible
Only if both prices match will a trade happen, and only the first one in the queue of that price will win...

As a beginner do use limit orders only, never use market orders!
Then you can make a bid somewhere in the middle, for example $3.50, and wait till someone sells to you for this price...
You can of course also change your order many times, and also completely cancel it...

 

[Sig]

i dont think my question is being fully understood. If there is always someone to buy at the bid price of 3$ which on my part is being instantly filled, why then cant i buy at 3$. Why do i have to buy at 4$??Obviously for the people selling which they can only sell at 3$ for it to be filled instantly means that someone at 3$ is buying. Who are these people buying and why cant i be one of them?

They're the market makers. In many markets they're designated and have to always post a bid and an ask. Nothing stops you from posting an identical price and receiving the same order fill, just keep in mind that it's first in line when it comes to order matching. You could also post a price $.01 better than the market maker and now you're the first to be filled.
It sounds like easy money, but in all but the most liquid stocks you can go some time before someone enters a market order that you get to fill. In the mean time, you have to be constantly adjusting your price as the price of the stock moves. The market makers have this all automated, you'd be doing it manually. There is also some adverse selection going on, usually you end up "making a market" mostly when the market's turning against you and the market makers were able to adjust their prices faster than you could. It's a rich area for study and probably one of the few areas where there's really alpha, but because of that it's also pretty hard to make it work. No reason not to experiment with it in a live account for a little bit though, its not the kind of thing that usually blows up in your face so even if it doesn't work out you probably won't lose a huge amount and it's a pretty educational experience.

 

[Ferdinand]

I always thought of it this way:

Bidding:
pro - you may get the lower price
con - you may not get filled at all

Taking the offer:
pro - you get the stock
con - you pay the higher price

In other words, you pay more to insure your order is completed.

I think this is more important on a very fast timeframe. The time to pay to make sure you get the stock is when you think it's going up RIGHT NOW.

If you are going to hold for hours chances are you could get filled on the bid.

Your question seems to be about who these people are who are able to get their orders filled at the lower price. They could be people like you and I bidding and hoping they get filled. Also, I have no problem acknowledging it is a bit of a scam. In many cases you get filled on the bid when the stock is going lower. This gets into a much larger and complex issue, which is that trading is hard, very competitive, and probably not entirely fair.

This is something very familiar to me:

Visible offers (1-3 lots) at xx.32, xx.34, xx.35

I send an order to take 400 shares up to xx.36.

I get filled at xx.32, xx.34, and some odd # of shares at xx.36.

I have 253 shares and the visible offer is back at xx.34.

This is bullshit.

And it happens all the time.

You can cry about it, lobby for it, write your congressman, or accept that is the current market structure and continue trying to trade your best despite it.

 

[ETcallhome]

They're the market makers. In many markets they're designated and have to always post a bid and an ask. Nothing stops you from posting an identical price and receiving the same order fill, just keep in mind that it's first in line when it comes to order matching. You could also post a price $.01 better than the market maker and now you're the first to be filled.
It sounds like easy money, but in all but the most liquid stocks you can go some time before someone enters a market order that you get to fill. In the mean time, you have to be constantly adjusting your price as the price of the stock moves. The market makers have this all automated, you'd be doing it manually. There is also some adverse selection going on, usually you end up "making a market" mostly when the market's turning against you and the market makers were able to adjust their prices faster than you could. It's a rich area for study and probably one of the few areas where there's really alpha, but because of that it's also pretty hard to make it work. No reason not to experiment with it in a live account for a little bit though, its not the kind of thing that usually blows up in your face so even if it doesn't work out you probably won't lose a huge amount and it's a pretty educational experience.

it will blow up in your face bigtime if you don't have a loss prevention program. Or in my case work out really well. Buy the bid sell the ask all day long. It wasn't until I got stuck with positions on the close and was forced to hold over night that I finally realized, "Oh, so that's how they make money."

 

[Sig]

it will blow up in your face bigtime if you don't have a loss prevention program. Or in my case work out really well. Buy the bid sell the ask all day long. It wasn't until I got stuck with positions on the close and was forced to hold over night that I finally realized, "Oh, so that's how they make money."

You're right of course, if you're learning you want to stay super small and as flat as you can, i.e. 1 lot and immediately move to sell side after you buy. And to take your point, sell what you're holding EOD even if at a loss. You'll in all probability lose money but it's not like selling naked options or something.

 

[ETcallhome]

You're right of course, if you're learning you want to stay super small and as flat as you can, i.e. 1 lot and immediately move to sell side after you buy. And to take your point, sell what you're holding EOD even if at a loss. You'll in all probability lose money but it's not like selling naked options or something.

EOD sounds good until EOD is more loss than you made all month. And next thing you know, you may wake up pregnant with a swing trader.

 

[cashclay]

Does EOD mean End of day?

 

[Sig]

Does EOD mean End of day?

Sorry, yes. And ETcallhome's point on that is certainly valid as well. At least the "more loss than you made all month part", won't comment on the pregnant part.