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