StockFetcher Forums · General Discussion · erosion of profits by ask/bid spread<< 1 2 >>Post Follow-up
happy_as_a_lark
9 posts
msg #27726
Ignore happy_as_a_lark
8/9/2003 11:24:35 AM

I have recently joined SF and would like to thank everyone for outstanding filters and other contributions. Thanks for sharing your incredible ideas.

Iíll like to buy stocks for few days, may be for a week using some of the filters posted on this site. However, I am concerned that lot of profits will be eroded by ask/bid spread since most of the screens use low priced stocks. When I modify the screens by using larger more liquid stocks, the performance drops down. On the other hand, with the smaller non-penny stocks, one has to often make 3% or more to make any profit. That is not easy to do in one week. How are people circumventing this problem on real life trading?

Thanks.



bob79924
38 posts
msg #27727
Ignore bob79924
8/9/2003 2:36:01 PM

Just a note that may interest you. I use Ameritrade, which is a flat rate of $10.99 per trade, regardless of price, number or shares, market or limit, etc. All is one price. The result is that the amount of increase (in cents) required to reach the breakeven point and start to profit, is strictly a function of the number of shares involved and is completely independent of the amount of money involved or the price per share. This would be true of any broker who charges a flat amound regardless of other factors. For example, if I buy 100 shares I must have an increase of 22 cents per share to break even. If I buy 500 shares, I would only need an increase of 4 cents per share to break even. For 900 shares, it would only require an increase of 2 cents per share. So, going for a lower price per share so you can buy more shares may make it easier to make a profit on your purchase. I hope this helps you somewhat.
Bob W.



TheRumpledOne
6,358 posts
msg #27728
Ignore TheRumpledOne
8/9/2003 5:23:21 PM

Check out www.freetrade.com


happy_as_a_lark
9 posts
msg #27732
Ignore happy_as_a_lark
8/9/2003 7:10:29 PM

Thanks to Bob and TheRumpledOne.

I checked these sites out. Do you mean that ameritrade/freetrade do not use ask/bid system? I understand low commissions but am not sure if they donít use the spread. In other words, if you buy 1000 shares of a company, the price will not be same, if instead you were to sell 1000 shares of the same company at a given time using the same broker. And what about the penny stocks, how do you manage huge spreads that go with them? Sorry, I am new at this.

Thanks.



bob79924
38 posts
msg #27736
Ignore bob79924
8/10/2003 1:47:35 PM

Okay Lark, I'm not sure I understand your questions, but I'll try. As for FreeTrade, I haven't used it and I'm pretty sure I don't want to. It's too ultra simplified for my blood. No contact by phone, no acceptance of mailed in deposits or mailed out cash, etc. What if your computer, or Internet connection goes down? In that case, you're stuck. Also, wiring money in or out is expensive. With regular Ameritrade I can deal with them by phone, including making trades if I can't use the Internet for some reason. Also, money in and out by regular snail mail. By the way, Ameritrade, last I knew, only requires $500 to open an account. Freetrade requires $5,000 and two years experience with a discount broker.
Next subject, the part of your question I don't understand. The commissions at Ameritrade are $10.99. Period. It can be 1 share or thousands of shares. It can be 10 cents per share or a couple hundred dollars per share. It can be a market order, a limit buy, a stop sell, day order, GTC order, etc. etc. It can be a buy order or a sell order. It's still $10.99 for the order. Period. If the order is broken up into more than one buy or sell block, it's still a total of $10.99 for the whole order, as long as the different blocks are on the same day. (I am ignoring the SEC fees, which only amount to a few pennies.) The stop orders or limit orders do not cost anything unless they execute, and then it is the regular $10.99 commission of course. There is a quarterly charge of $15 if you have less than 3 (I think) transactions per quarter that generate a commission. If you are that inactive, you have no need to be spending money on a StockFetcher subscription. The fact that this commission system is a flat amount means the amount of increase in share price needed to break even is solely dependent on the number of shares you buy. It's a simple mathematical fact. And it's the same for you as for me, if you are using Ameritrade. For 100 shares, you need a 22 cent increase. For 900 shares, you need a 2 cent increase. Simple math.
Regarding bid and ask: Without additional cost, you can view real time, no delay quotes that include the inside bid and ask prices and sizes on any stock. You can get streaming quotes on a number of stocks at once, also free. For $9.99 per month, you can get real time Level II quotes that show a wide range of the bid and ask prices and sizes on a stock, not just the inside bid and ask. This info is very useful for determining the status of a stock as far as how much demand there is and how much supply there is, possibly the two most important items for guessing where a stock will go in the near future.
If you have more questions, I'll be around from time to time.
Bob W.



bob79924
38 posts
msg #27737
Ignore bob79924
8/10/2003 1:59:15 PM

Lark:
One added item I missed. A large spread between bid and asked prices usually means not much activity. Normally I avoid stocks with a large spread. Also, never buy stocks with a "market" order. They will "see you coming" and you'll get charged an exorbitant amount by the market maker(s). This is especially true for Bulletin Board stocks versus NASDAQ stocks. The BB stocks are listed on Ameritrade as OTCBB. I try never to buy BB stocks; they are often manipulated. Always use a limit order to buy. And never put in an overnight order or order in before the open. Same thing. Watch what happens in the first minutes after the market opens. You'll see trades at high prices to people who put in overnight or early buy orders.
Regarding penny stocks: the lower the per share cost, the more shares you can buy with the same money, which means a smaller increase needed to break even.
Bob W.


happy_as_a_lark
9 posts
msg #27741
Ignore happy_as_a_lark
8/10/2003 2:29:48 PM

Bob,
Thanks very much for your help. It makes sense.
Lark


slavtcho_nikolov
2 posts
msg #27745
Ignore slavtcho_nikolov
8/10/2003 8:41:38 PM

To quote William O'Neil from memory - "you can never make big money in the market by eights or quarters". And "you must be right on the big moves, not the minor fluctuations".
Slippage can be even greater in option trading.
If you don't like slippage, then consider trading currencies.


TheRumpledOne
6,358 posts
msg #27749
Ignore TheRumpledOne
8/11/2003 1:15:29 AM

Bob:

There are 2 sides to a coin. Entering a Market Order by 9:20 am guarantees you a fill at the OPEN price on Ameritrade. You can make a nice quick profit that way.

I use Ameritrade (I hate it) but I use quotetracker as a front end (love it). After I make enough to get a real trading platform, I will say bye bye Ameritrade.

But for now, Ameritrade with Quotetracker is about the hottest setup for beginner's. And if you trade enough, Level II is free!!







TheRumpledOne
6,358 posts
msg #27750
Ignore TheRumpledOne
8/11/2003 1:18:38 AM

Bob...

It's not the stock you trade, but HOW you trade it.

BB stocks can make you rich, if you are a good trader! That's the other side of that coin.

5% or higher gains, day after day, after day...

But you have to TRADE, not buy and hold. Buying 5,000 shares can gross you $100 on a 2 cent move.

Just do your DD on BB or any stocks...

MAY THE TRADE BE WITH YOU.




StockFetcher Forums · General Discussion · erosion of profits by ask/bid spread<< 1 2 >>Post Follow-up

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