why not to trade a $100 stock

Sky123987 · Oct 16, 2007

I'm in this stock class and they say never to trade a > $100 stock here's why:

Example 120.20 (bid) 120.35(ask)
say you are first in line with a buy limit 120.20. A sell market order comes. What they say is that if the specialist knows that the price will go up, he'll bid 121.21 and get his order filled. Or if the specialist knows the price will go down he'll let you get filled. So you only get filled when you don't what to. Is that true?

Also if so, they why couldn't this happen in a stock with a spread > .01 like 23.02 (bid) 23.04(ask), if you bid .02 the specialist could penny you @ .03?

Nostrils · Oct 16, 2007

I don't know either. :eek: :mad:

gaj · Oct 16, 2007

my guess (for why they're saying this) is because the spread on the higher price stocks makes it more justifiable for the specialist to jump in front, then sell and make the spread.

on a lesser priced stock, he may not care about the spread, but you (will/do).

orange_trad · Oct 16, 2007

qaj: OK, but then they would say don't trade a stock with a big spread, wouldn't they?

to the OP: shouldn't you ask them this too? And by the by: don't trade with a bucket shop that would trade against you.

Don Bright · Oct 16, 2007

A lot of slippage, and a number of automated programs similar to the old "SOES Bandits" that find wide spreads and place "hidden" buys and sells between the NBBO quotes. There are also hidden liquidity pools that may be priced in between as well.

With narrow spreads, we eliminate a lot of that slippage.

Don

u21c3f6 · Oct 16, 2007

But what if you think the $100 stock is going to $150?

Does the slippage still prevent you from buying it?

Joe.

stock_trad3r · Oct 16, 2007

Very simple rule: stop trying to penny pinch the system

to buy you have to pay up

Don Bright · Oct 16, 2007

Quote from u21c3f6:

But what if you think the $100 stock is going to $150?

Does the slippage still prevent you from buying it?

Joe.

Nothng to stop you from making an investment, I'm talking about short term trading, pairs, openings, etc.

Don

S2007S · Oct 16, 2007

yea if your trading tens of thousands of shares, it doesnt make a big deal on hundred or even 500 share positions.

joe_blo · Oct 16, 2007

Quote from Don Bright:

A lot of slippage, and a number of automated programs similar to the old "SOES Bandits" that find wide spreads and place "hidden" buys and sells between the NBBO quotes.

Don

Actually, the "SOES Bandits" of old used SOES, which could only be used to pay spreads. There were no "hidden" orders (or ECNs for that matter).