stock price Spreads, liquidity

Discussion in 'Retail Brokers' started by Rocko1, Apr 10, 2007.

  1. Rocko1


    Sorry I did not find anything on these things via search.
    I've been looking through brokers and plan to start trading stocks.
    Read somewhere that high volume stocks usually have a spread of only $0.01 USD. Was wondering what the spreads are you guys see on the lower volume stocks. What about liquidity when it comes to short orders?

  2. that is really a function of the number of shares you are buying/selling and the current sentiment of the stock.

    You need to analyze market depth to calculate the actual spread, weigh the opportunity cost, and possibly, chop the order into smaller blocks and submit as new shares flow into the book. Timing is also important... if there's a strong imbalance between buyers & sellers, liquidity is sharply less.
  3. Rocko1


    Thanks for the quick run down.
    Sounds like a lot of fun. I guess there's always something new to learn.
  4. There's a ton of research on this subject... a Google search for 'market impact optimal estimation' returns over 1 million results. Most papers are interesting (e.g., limit prices are actually governed by power law distribution), but the applications are mostly irrelevant/inaccessible to retail.

    One idea that I've been experimenting with is measuring the time it takes to fill 1 share limit orders at 5 levels of the book (selling at the ask price, buying at the bid price). When the stock is about to fall, MMs delay the short orders, as opposed to almost instant execution when it's going up. I then send larger orders to the side with the slowest fill and get an improved price.
  5. Rocko1


    Wow, thank you that made a lot of sense. I had no idea the simple act of order taking can be so highly involved and will look into it right away. what's the longest delay you've experienced so far via MM's?