Bid Ask Spread

Quote from Bob111:

---What will probably happen is you will get filled on both sides a few times, and then you'll get filled on one side and then it will go against you.---

exactly. most likely-they will squeeze you out much sooner than that.
i'm pretty sure that if you(retail) got filled easily on either side-the price will go against you. at least in very short time frame.
think about it..one side will be filled. side where demand for shares is greater.
More...

Unless you are capturing the spread...
You are paying about half of it = you are fucking toast...
I doubt anyone could absorb even a $0.01 spread in the long run.

The way you capture a spread...
Let's say a $50 stock with a $0.07-0.08 spread that trades 300,000/day (I do this everyday)...
You hedge it with a > 90% correlated pair with a $0.01 spread.

You are well-hedged... so you can wait 5 or 10 or 30 minutes or overnight...
To build up the hedge more or close it out...
With every pairs trade you are capturing the big spread... and (mostly) paying the $0.01 spread....
Usually you have a basket of these with 100 long + 100 short.
 
Can you give some examples of the correlated pairs you use?

Aside from that, I was just doing this with BTU. It is not too bad if the supply and demand is clear.
 
Quote from DayTrader10:

Can you give some examples of the correlated pairs you use?

Aside from that, I was just doing this with BTU. It is not too bad if the supply and demand is clear.
More...
SPY IVV and VOO could make a good starting point... since the 3 etf's are based on the same index and have very different liquidity and spread...
 
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