Do you rely on your trading to put food on the table?

[HobbyTrading]

I seldom use limit orders. Mostly to roll, and in thin markets. I care more about getting in than getting the exact price. I guess I’m a liquidity sucker.

Even in those cases do I use limit orders, not market orders. I want to avoid that I get a fill at some funky price, far away from the bid/ask. So I use a limit order, but place it at the bid or ask. In that case am I sure that it will be filled, without getting unpleasant surprises.

 

[schweiz]

I care more about getting in than getting the exact price.

Better to pay a little more and be in the trade then try to get the best price and miss the trade.
If you cannot make money paying a little bit more you should improve your trading plan as it sucks.
Profits can never come from getting the best price, except for HFT.

 

[tommcginnis]

There seems to be a lot of talking past one another here.

How would you explain it to a student?
What's the most generalizable case?

Wide markets are illiquid.
Narrow markets are liquid.

If your order, of whatever type/time/duration, narrows the market, you are adding liquidity.
(It's what most of us do.)

 

[777]

I disagree limit orders at the bid or the offer price are "taking".

By definition, there is no guarantee whatsoever that a limit order will be executed and filled, regardless of the (limit) price, which includes the immediate bid or ask price. Further, limit orders have less priority than market orders, again price being irrelevant. Additionally, limit orders are queued/prioritized with/against other limit orders. A lot can happen between the time a limit order is placed, received, accepted, prioritized, and (possibly) executed at the appropriate transaction venue.

I would agree however, a limit order placed at the immediate bid or ask price with FoK or AoN conditions could be considered taking, if the order is executed.

Perhaps I'm being stupid, so please correct if I am wrong.

Taking liquidity and providing liquidity are terms with exact meanings in the industry: traders, brokers, exchanges, etc.

Perhaps I did not make myself clear so let me give two examples where a trader is looking to buy stock:

TAKING LIQUIDITY WITH A LIMIT ORDER, EXAMPLE:

When a trader puts in a buy order to be filled at the current offer he is said to be "taking". Also he is never eligible for a rebate if filled on the offer. A trader who is filled on this order might say "I hit the offer".

Some NYSE traders who strongly want a fill will enter their buy order a penny or two above the current offer because by the rules they must be given the best available price-- they are "taking liquidity" as well.

PROVIDING LIQUIDITY WITH A LIMIT ORDER, EXAMPLE:

If a stock trader puts in a fishing order to buy stock on the bid, or lower, he he is a "provider" and may receive a rebate under the right circumstances.

(When it comes to definitions, I try not to roll my own.)

 

[tiddlywinks]

@777

My understanding has been updated. In very simple terms ...
All "market" orders are takers, but not all "limit" orders are makers.

Thank you for the explanation. The roundabout mention of NBBO drove it home.

 

[Simples]

Some 4 year old context: https://blogs.cfainstitute.org/mark...tion-an-expensive-way-to-get-tighter-spreads/

 

[ironchef]

I agree. If you want to make a living at trading, make living doing something else and trade. It;s FAR easier, and, since what you make has month-on-month variance but your cost of living does not (mostly), the way to make a living from trading is to make a living from a job ad trade. This is your surest path to success in trading.

I disagree.

You can say the same with lots of other professions: Car sales, RE sales, selling anything on commissions, even farming, mining... are all in the same boat. A lumpy income is not the reason one has to make it a part time job.

 

[sle]

Some 4 year old context: https://blogs.cfainstitute.org/mark...tion-an-expensive-way-to-get-tighter-spreads/

It's a little bit on the biased side, considering the source, but general gist is correct.

 

[treeman]

Other than rebates (if that’s your thing, my broker doesn’t even offer), why would you care if you take or provide liquidity? I don’t trade to be a mm.

 

[rvince99]

I disagree.

You can say the same with lots of other professions: Car sales, RE sales, selling anything on commissions, even farming, mining... are all in the same boat. A lumpy income is not the reason one has to make it a part time job.

Trading though is a compounding process, hence increases in variance in pcnt returns are equivalent and identical to decreases on pcnt return - squared!

The examples you cite of lumpy income don't have this guatapens, they are more like saying that a guy COULD live off of a social security check that paid him a random amount. The underlying vehicle to generate future income is unaffected in such a case, but in trading it is affected grotesquely.