The Market's House Edge! :(

Quote from LoosenUp:
If you do not believe in house edge, do you always use market orders to get in your trades?

No. I use limits almost exclusively. Fills are not a problem in the markets I trade. My prior planning of the trade allows the price to "trade-through" the limit order - I anticipate this and let it work for me. Given this, if the price doesn't enter my entry area, the trade is not worth it. This "trade through" cost is factored into my stop price.

And, are you a daytrader or longer term trader? I tend to agree with Remiraz that there is actually some sort of house edge because the real price is something in between bid and ask, and if you always pay up as in market orders, you would be incurring extra costs.

First off, the "real price" as you refer to it here is irrelevant. Understand that either the bid or the ask is the "real price". It takes a buyer and seller - NOT a spread to determine the price.

I am a daytrader and I hold overnight. What you call a house edge is simply the spread. Every market has a spread and market makers create the spread. I doubt either you or Remiraz are market makers and I doubt the goal of your trading is to provide liquidity. If it is then I suggest you get a job as a market maker and NOT compete with the market maker unless you have a very good commission structure and access to the correct tools. From what I understand, market makers are NOT daytraders, they are order handlers. They seek to capture the spread and they do so by allowing ease of entry and exit.

However, I also think that in volatile times, when there is a need to get in and get out quick, I still use market orders. Put it this way, I would bargain for better prices if I am not in a hurry. Would like to listen to other's views.

You are essentially paying for the luxury of being able to enter and exit when you like. This IMO is too expensive of a luxury in MOST (but definetely not all) cases. It shows a lack of trade planning and a lack of patience IMO.

Without getting into the details of what I believe is good risk/reward and the philosophy behind capturing certain pricing inefficiencies I will say this - the tighter the spread, the more efficient the market. Your trade size, frequency, and risk capacity should all be based on the ratios of price/spread volatility during the time frame you wish to trade.
 
Mike,

Seems like you understand that spread (one can view it as "house edge") or whatever is a serious costs. Thats what I want to clarify.

Thanks
 
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