Playing Bid/ask

Discussion in 'Trading' started by SHORTY, Oct 14, 2001.



    Hi all,

    I'm am just sitting around on a rainy Sunday afternoon rereading my Tony Oz book - The Stock Trader. He mentions something I've seen several times on stock I've been watching. My question is how can I do what He did?

    The scenario:

    I see the bid price is higher than the ask price on a stock I'm watching. If I could buy at the ask, I could sell for a quick profit at the bid.

    My questions:

    How do I do this? What are the routing considerations? Am I missing something?

    Any help would be appreciated.

    Good Luck and Big Profits!
  2. Magna

    Magna Administrator


    I read the same example in Tony's book. But be very careful with attempts at arbitrage:

    If I could buy at the ask, I could sell for a quick profit at the bid.

    First, you better have a T1 line with absolutely instant fills and instant order routing, then you better hope that in the time you get verification of the fill and enter your new sell order at the bid -- that the higher bid anomaly hasn't disappeared. If it does, and I suspect in most cases it will (or it was simply bad data on your L2 screen where some ECN hadn't refreshed), your stuck in a position with no great exit.
  3. bora


    The stock was trading after-hours(KLAC), i haven't seen this before in the after-hours market. But you should only look at the ECN's and not at the MM. So the chance that you will see this happen is very small, and you have to be very fast.
  4. Shorty

    Occassionaly you will get the opportunity to buy from one ECN and sell to another immediately at a higher price. I see this happening every now and again during premarket.
    For example, buy from ask on Island and sell to bid on Redi when you see the Island ask lower than the Redi bid etc...
    As Magna pointed out though, you have to be super fast. These opportunities don't last very long, 10-20 seconds at most (as far as I have seen so far). It can be done though :)
    Don't make the mistake of buying from an ECN and trying to sell to a Market Maker during pre or post market. The MM's don't participate, even although they will post bids and asks.
    Generally its not worth your while searching for an arbitarge opportunity, but maybe one day a good one will fall in your lap (like Tony Oz had).