If I can enter bid/ask at sub-penny level and changes in prices are at least one penny, I am virtually guaranteed success in any assets I trade. I have another post here: http://www.elitetrader.com/vb/showthread.php?threadid=208377 Does anyone know any brokers that allow sub-penny bid/ask? If no such broker, I want to trade directly with the exchange. How much will leasing a server cost? If the following conditions are true, I will be the richest man in the history of the universe in no time: (1) the minimum price change is at least one penny; (2) I can enter bid/ask at sub-penny level; (3) I can enter a trade with my parameters each time the price changes; How can I be the richest man in the history of the universe with this scheme? Assume I trade stock XYZ whose current price is $1, and its price changes each second. My linked post above gives me a positive expectancy of $0.0099 per share each time the price changes. If commission is considered (let's just use IB unbundled commission of $0.001 per share), I am left with 0.0089. If I trade one share, each second I make $0.0089, and after 112 seconds, my net value is doubles. So, starting with $1 and a doubling time of 112 seconds (about 2 minutes), in one trading day (930AM to $4PM)I will be worth $(2^195). This number may be close to the total number of atoms in the Milky Way? Can anyone convince the exchange to let me try? Wanna partner up with me in this? I am willing to let you have 99% of the profit if you can convince the exchange. BTW, $2^195 = $50216813883093446110686315385661331328818843555712276103168
Forgive me for only skimming your posts, but I think you've at least neglected adverse selection. Also, I'd say that there's no substantive advantage to .0001 vs. .01, unless you're a B-D and you can trade against your own clients, a practice known as "B-D internalization"and sometimes euphemized to "price improvement", in which case the B-D has right of first refusal, plus knowledge of the size of your position and order, advantages you're not going to get. Here are a couple of books if you're interested and haven't delved this deeply into the topics you're discussing: http://www.amazon.com/First-Course-Stochastic-Processes-Second/dp/0123985528 http://www.amazon.com/Elements-Information-Theory-Telecommunications-Processing/dp/0471241954 Just my thoughts; maybe you've got something, but don't count your $50216813883093446110686315385661331328818843555712276103168 before it hatches.
It starts with the title of this thread, which instantly labels you as an uninformed newbie. And then, you pretty much finished the thesis defense with your starting post.