why not to trade a $100 stock

Discussion in 'Strategy Development' started by Sky123987, Oct 16, 2007.

  1. I'm in this stock class and they say never to trade a > $100 stock here's why:

    Example 120.20 (bid) 120.35(ask)
    say you are first in line with a buy limit 120.20. A sell market order comes. What they say is that if the specialist knows that the price will go up, he'll bid 121.21 and get his order filled. Or if the specialist knows the price will go down he'll let you get filled. So you only get filled when you don't what to. Is that true?

    Also if so, they why couldn't this happen in a stock with a spread > .01 like 23.02 (bid) 23.04(ask), if you bid .02 the specialist could penny you @ .03?
  2. Nostrils


    :( I don't know either. :eek: :mad: :(

  3. gaj


    my guess (for why they're saying this) is because the spread on the higher price stocks makes it more justifiable for the specialist to jump in front, then sell and make the spread.

    on a lesser priced stock, he may not care about the spread, but you (will/do).
  4. qaj: OK, but then they would say don't trade a stock with a big spread, wouldn't they?

    to the OP: shouldn't you ask them this too? And by the by: don't trade with a bucket shop that would trade against you.
  5. A lot of slippage, and a number of automated programs similar to the old "SOES Bandits" that find wide spreads and place "hidden" buys and sells between the NBBO quotes. There are also hidden liquidity pools that may be priced in between as well.

    With narrow spreads, we eliminate a lot of that slippage.

  6. u21c3f6


    But what if you think the $100 stock is going to $150?

    Does the slippage still prevent you from buying it?

  7. Very simple rule: stop trying to penny pinch the system

    to buy you have to pay up
  8. Nothng to stop you from making an investment, I'm talking about short term trading, pairs, openings, etc.

  9. S2007S


    yea if your trading tens of thousands of shares, it doesnt make a big deal on hundred or even 500 share positions.
  10. joe_blo


    Actually, the "SOES Bandits" of old used SOES, which could only be used to pay spreads. There were no "hidden" orders (or ECNs for that matter).
    #10     Oct 16, 2007