Comments on: Misunderstanding the Bid/Ask Spread in Stock Trading http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/ Information and resources for those looking to learn about trading and the markets Sat, 19 May 2012 12:27:40 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Penny Stocks or Forex for the new trader | The Essentials of Trading http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-19340 Penny Stocks or Forex for the new trader | The Essentials of Trading Tue, 31 Jan 2012 14:14:17 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-19340 [...] a good reason to opt for penny stocks, though, because their lower liquidity tends to mean higher bid/ask spreads than in higher-cap stocks and commissions have a higher negative impact on a smaller account than [...] [...] a good reason to opt for penny stocks, though, because their lower liquidity tends to mean higher bid/ask spreads than in higher-cap stocks and commissions have a higher negative impact on a smaller account than [...]

]]> By: The Best of the Essentials of Trading in 2011 | The Essentials of Trading http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-19308 The Best of the Essentials of Trading in 2011 | The Essentials of Trading Fri, 30 Dec 2011 15:33:31 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-19308 [...] Misunderstanding the Bid/Ask Spread in Stock Trading [...] [...] Misunderstanding the Bid/Ask Spread in Stock Trading [...]

]]> By: Book Review: The Global Economic System | The Essentials of Trading http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-18587 Book Review: The Global Economic System | The Essentials of Trading Thu, 21 Jul 2011 07:04:13 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-18587 [...] tend to see traded prices as the primary piece of information (this is something I wrote about in Misunderstanding the Bid/Ask Spread in Stock Trading, which is among the most commonly read posts on this site). The language the author’s use may [...] [...] tend to see traded prices as the primary piece of information (this is something I wrote about in Misunderstanding the Bid/Ask Spread in Stock Trading, which is among the most commonly read posts on this site). The language the author’s use may [...]

]]> By: John http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-14727 John Sat, 29 Aug 2009 12:12:16 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-14727 William - Generally speaking, a narrow spread indicates a very liquid security, while a wide spread indicates a much less liquid one. That basically means how much you have to give away to enter and exit a trade. For those who trade frequently, wide spreads can seriously impede performance. Those who are long-term players looking to play larger moves in the price don't have to worry that much - so long as there is sufficient liquidity to get out of one's position when the time comes. William – Generally speaking, a narrow spread indicates a very liquid security, while a wide spread indicates a much less liquid one. That basically means how much you have to give away to enter and exit a trade. For those who trade frequently, wide spreads can seriously impede performance. Those who are long-term players looking to play larger moves in the price don’t have to worry that much – so long as there is sufficient liquidity to get out of one’s position when the time comes.

]]> By: William http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-14726 William Fri, 28 Aug 2009 17:21:04 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-14726 Mine is a question: What role does the B/A spread play in analyzing a ticker for entry? What is the significance of a narrow spread vs a wide spread? For example, I am setting up to enter a trade on a stock with a spread of only 0.01. Is that cautionary information to a trader? I recall learning that too wide a spread is a reason to not enter a trade. Mine is a question: What role does the B/A spread play in analyzing a ticker for entry? What is the significance of a narrow spread vs a wide spread? For example, I am setting up to enter a trade on a stock with a spread of only 0.01. Is that cautionary information to a trader? I recall learning that too wide a spread is a reason to not enter a trade.

]]> By: Moolanomy weekly roundup #13: “300″ edition | Moolanomy http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-10048 Moolanomy weekly roundup #13: “300″ edition | Moolanomy Sun, 21 Oct 2007 20:32:47 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-10048 [...] Misunderstanding the Bid/Ask Spread in Stock Trading @ The Essentials of Trading — this is a clarification of my post “The Hidden Cost of Free Stock Trades“ [...] [...] Misunderstanding the Bid/Ask Spread in Stock Trading @ The Essentials of Trading — this is a clarification of my post “The Hidden Cost of Free Stock Trades“ [...]

]]> By: Pinyo http://theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-10034 Pinyo Thu, 18 Oct 2007 02:38:27 +0000 http://www.theessentialsoftrading.com/Blog/index.php/2007/10/17/misunderstanding-the-bidask-spread-in-stock-trading/#comment-10034 John, thank you for your comment and this post. This is why blogging is interesting. I also left this comment on my own blog for you and my readers. What you said in the first and second paragraphs was the point of the post. Regarding the inaccuracies: 1. You’re absolutely right. It’s the market maker not the broker that keep the spread. 2. I use the term “pay” very loosely since you only pay money for the trade commission. You “pay” for spread by buying at higher price and get less share; and selling at lower price and get less money. 3. For the last statement, you are more precise, but we are saying the same thing. Short-term implies more trades, which implies more instances of spread loss. These losses are cumulative and become a larger barrier to overcome. In my blog posts, I tend to generalize certain concepts a bit to get my points across. Thank you for clarifying these points. John, thank you for your comment and this post. This is why blogging is interesting. I also left this comment on my own blog for you and my readers.

What you said in the first and second paragraphs was the point of the post.

Regarding the inaccuracies:

1. You’re absolutely right. It’s the market maker not the broker that keep the spread.

2. I use the term “pay” very loosely since you only pay money for the trade commission. You “pay” for spread by buying at higher price and get less share; and selling at lower price and get less money.

3. For the last statement, you are more precise, but we are saying the same thing. Short-term implies more trades, which implies more instances of spread loss. These losses are cumulative and become a larger barrier to overcome.

In my blog posts, I tend to generalize certain concepts a bit to get my points across. Thank you for clarifying these points.

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