Question about Price Manipulation

[lmnop]

Hi All,

I have a question that I was hoping some of you seasoned traders can help me with. The following has been happening to me almost every time I have been trying to buy a stock with a micro market cap and very low volume. Say the bid is at $9.50 with a bid volume of 1. If I put in a buy at $9.51 with say a volume of 7 or 8, I immediately get a bid of $9.52 on top of mine for a volume of 1. This is, I am sure, trying to use my bid as downside protection. How is someone doing this and more importantly, who is doing this. Is there a software that lets you place orders at bid + .01. I am getting pretty frustrated. Can anyone shed any light on this practice?

Thanks,

lmnop

 

[trom]

It's a program. It happens all the time. Hide on ISLD at the inside and it won't follow you.

 

[ByLoSellHi]

It's the matrix.

Just wait until you're unplugged and see what they're doing to the U.S. dollars in your bank account.

 

[nonlinear5]

Quote from lmnop:

Hi All,

If I put in a buy at $9.51 with say a volume of 7 or 8, I immediately get a bid of $9.52 on top of mine for a volume of 1. This is, I am sure, trying to use my bid as downside protection. How is someone doing this and more importantly, who is doing this. Is there a software that lets you place orders at bid + .01. I am getting pretty frustrated. Can anyone shed any light on this practice?

The post subject is misleading, as it contains the phrase "price manipulation", which implies some sort of illegal activity. What you see is a perfectly normal market activity. In your case, an automated trading system is making a market in a thinly traded stock. It's not trying to "use your bid as downside protection", as you put it, but simply competing with your bid in an attempt to profit from the bid/ask spread, which tends to be wide in the microcap issues. You can't beat a computer in this game, so don't play it.

 

[lmnop]

Quote from nonlinear5:

The post subject is misleading, as it contains the phrase "price manipulation", which implies some sort of illegal activity. What you see is a perfectly normal market activity. In your case, an automated trading system is making a market in a thinly traded stock. It's not trying to "use your bid as downside protection", as you put it, but simply competing with your bid in an attempt to profit from the bid/ask spread, which tends to be wide in the microcap issues. You can't beat a computer in this game, so don't play it.

Thanks for your reply. I do not mean to mislead anyone (I changed the name to clipping so as not to "offend" anyone with extreme sensibilities). I am just trying to learn about this practice since I do not know of any capability for the average trader to place a current bid +.01 order. As you note, this places the average trader at a disadvantage which he cannot overcome without great difficulty.

However, your answer is a little unclear. You say it is an automated system to make a market AND and an attempt to profit from the bid ask spread. By providing an order above the then current bid, I already provided greater liquidity than was present before. Therefore, the market is already made. It, therefore, seems only a play to make a profit with a computerized system. The question that remains is whose "program" is this. Is it the market maker's or is there some broker who offers this.

If you were able to consistently clip the bid and ask by a penny (on a moving basis) on a micro-cap with a large spread, as this program does, you would make a killing.

 

[anomaly]

Sometimes people shadow my prices on the screen. In illiquid stuff I just stick in a very high bid or low offer for a very short space of time while my friend hits the guy shadowing me...

Only works if it's an idiot shadowing your price though. I suspect your guy will stop doing it if you put in a genuinely competitive price.

I mean think about it...

 

[nonlinear5]

Quote from lmnop:

The question that remains is whose "program" is this. Is it the market maker's or is there some broker who offers this.

All kinds of players are running those programs, starting from the big investment companies, such as Goldman Sachs, and ending with the small fish, such as myself. You may want to vist the Automated Trading Forum to find out more. The bottom line is, it really doesn't matter who is running those systems. You are unlikely to beat the speed and the efficiency of a robot if your game is to make the spread on a microcap stock.