As we all know the bid-ask spread is the way the specialists and money makers make thier money. For example, a heavily traded stock with a volume of 100 mln per day and bid-ask spread of a penny can fetch $1 mln per day -- not a bad daily wage as compared with average of $100 per day for ordinary mortals. (QQQQ has such a volume and MSFT, INTC,CSCO or AAPL ocasionally can reach a 100 mln shares per day too)
Stocks that are not that liquid can have much wider bid-ask spread to compensate for the 'loss'
My question is, given large enough volume to keep the spread equal to 1 penny (assuming you can not place a limit order with accuracy higher than a penny as is in most cases) would you prefer to trade a $20 stock or a $80 one? Don't you think that trading the first one is much more "expensive"?
2007-01-23 14:03:34 · 5 answers · asked by Anonymous in Business & Finance ➔ Investing
All else equal, I'd play the $80 stock.
2007-01-23 14:27:51 · answer #1 · answered by Leo P 2 · 0⤊ 0⤋
not at all. The bid/ask has nothing to do with volume. Nor does it really make that much money for the "specialists" Stocks have huge swings every minute it is all on market seniment. Take AAPL It had a huge pop up because of teh new serivce but once the sec announced their next round of invesitagtions and a profit warning from aapl the stock has dropped dramatically since then. That is why you set limit orders don't bid market or you will get burned.
2007-01-23 14:22:08 · answer #2 · answered by Anonymous · 0⤊ 1⤋
I have my own way of trading. I usually do not consider stocks over $50. Limit my number of penny stocks to 2 at a time. The rest fall in a range between $20 and $45. I usually do not look at the spread as a reason to buy or not buy a stock. Do your research about earnings, potential, debt, etc. and you will be a lot better off than worrying about a one cent spread.
2007-01-23 14:12:16 · answer #3 · answered by kny390 6 · 0⤊ 0⤋
That penny you are paying is the fee to ensure that you can quickly buy or sell the shares whenever you want. Many of these specialists are required to hold large inventories of shares in the companies they specialize in. As a result they face huge risks wheverthe price moves. This spread is what ensures that they can afford to continue in the business.
so, I will happily pay that peeny spread, regardless of the stock price for the knowledge that the stocks liquidity will remain high and I can sell it instantly without drastically affecting the price.
2007-01-23 16:27:18 · answer #4 · answered by urbanbulldogge 4 · 0⤊ 0⤋
What are you on about. The spread has little relevance unless you trade quite frequently (day trader).
2007-01-23 14:09:51 · answer #5 · answered by Anonymous · 0⤊ 0⤋