I was listening a podcast recommended from an ETer, and they were interviewing a guy that has done nothing but traded for a living. Anyways, at one point in the interview, the host asked this guy apparently whether he has ever played games with the level 2 quotes. I'm paraphrasing obviously, and I'm not sure he even said Level 2, but I think that is what he is getting at - the one where you can see not just the lowest ask and highest bid, but all those above/below it. The guy STARTED to say he had done it a few times, but then backed off real quickly and said that is not really his thing. So now I'm curious, what kind of games do people play to try and trick-f$ck people? Obviously, pulling in a large sell order just above market, hoping it won't fill but will scare people into selling, then snapping up the shares, and vice-versa on the buy/sell side, seems one thing someone can do. I imagine people have come up with a lot more creative stuff. And is this kind of stuff legal? I seem to remember on ET at least one person getting convicted manipulating the price action some way. Thanks!
So, tell us: You are trading a market with a MID of $100.00; BID of $98.75 ASK of $101.25. If you wish to sell, what is your offer? Why? If you wish to buy, what is your bid? Why? What else do you consider? Why? Give some to get some.
Thanks Error Correction Funder! Interesting, "layering" is kinda-sorta what I was talking about, but it apparently is to give the impression of liquidity in the market, not of demand or supply.
You're welcome. I wonder how people use L2 to make trade decisions. Unless I wanted to trade one side of the entire book in an instant, I don't use them.
Well ECF, I was thinking that people might be watching the L2s and look for order imbalances, and try to "get in first" before a major slide or rally. Like you are watching the L2s, and there are roughly an equal number of offers and bids, then all of a sudden all of these bids start pouring in. A bit below the max bid, but now the total bids all of a sudden dwarf the offers. In that context one might think there is soon to be upward pressure on the price, if for no other reason when those bids don't fill right away, and if they are legit and the persons placing them want them to fill they are going to have to start increasing those bids. So one might try and jump in to catch the rise. But I don't trade - that is just pure speculation. Probably wrong - probably no one does this because of the exact reason that people can play these games. Thanks!
Tommy, sorry I missed this post. What is the point your are trying to make here? I would say what you offer/bid is based on how bad you want to sell/buy. If this is a long term play, you might offer just below the current offer or bid just above the current bid. If you think you have some hot new or insight and the stock is going to move quick, you might just go ahead and get closer to the posted bid/ask, or just go with it to make sure you fill ASAP. If you have some particular thoughts here please do share! I'm sure there is lots of critical thinking, and lots of games being played, at and around the bid/ask margins. Thanks!