If your impression is correct that we can never get filled
offering stock at the ask, or buying at the bid, then all of
us should know that going into the game.
As far as I know, that is the case, and it is probably something
so basic that nobody on Datek or anywhere else realized a need
for it to be explained. If all one has ever done previously is
phone in orders to a broker to buy or liquidate long positions
at market prices, one wouldn't have to know these details. In
my initial foray into on-line trading, I found many resources on
the web which explain the basics. For example, look at
securitytrader.com or the glossary at
fcnis.com
I don't think it makes any difference what exchange is involved
with respect to how "bid" and "ask" prices are used. It may be
a slightly different mechanism as to who is setting them, but from
the standpoint of the individual investor, you always buy at the
"ask" price, and sell at the "bid" price. Just think of it like
changing to/from a foreign curreny at the bank. The bank always
has a spread, in addition to a handling fee (like a commission).
If you change your money to another currency and then change it
right back, the spread guarantees that you lose a percent or two.
Esteban's post suggests something more favorable is at work.
Datek has responded to other posts on the board saying that it
is possible to get price improvement, sometimes.
That's a feature of limit prices. You're setting a minimum price
at which you'll sell, or a maximum price at which you'll buy.
But if the broker can get you a better deal, they will. How hard
they try or how good they are at it presumably varies. You use a
limit price either to protect yourself if the market is volatile,
or as a way of making a conditional order so that you don't have
to sit there following the market all day.
For example, the price of XXX is 7, and you think it will spike
up during the session to 8 or 9, and then drop back down. So
instead of sitting there watching the ticker like a day-trader,
you make an order to sell at a limit price of 8.5, figuring to
buy the stock back later after the oscillation (over-reaction of
the market to some good news, followed by return to reality and
correction). The stock spikes so quickly from 7.0 up to 9.0,
jumping through your limit, that the trader acting on your behalf
has no chance to sell at 8.5 - he sells at 9.0 which exceeds the
limit. So yes, you can get a better deal sometimes.
I'm not sure of the mechanics of the trading in all cases. Orders
entered on a computer, rather than those manually carried out in
a pit, may be sitting there where they can be seen in a list on
a screen. If you have a sell order at 8.5, it will presumably be
listed, sorted with the other sell orders according to price, and
will be filled when the "bid" prices of the market makers rise
to that level, all orders to sell at a given price being filled
by the broker in the order in which they were received. In this
scenario, I don't see how the broker can get you a better price,
if the buyer already knows what you are willing to sell at. |
