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Non-Tech : Bid /Ask Spreads - Market Manipulation
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To: Jeff Dryer who wrote ()11/25/1996 2:12:00 PM
From: geoffrey Wren   of 308
 
This is a subject I wish got more investor concern. I would be more of a trader, but winning on small profits is like going to a poker house where they rake 10% of the pot off the table every hand. At the end of the day, the house is a winner, but few of the players. For instance, a stock might be bid 19 1/4 and ask 20. So if you were to get in and out on the same day, and pay two commissions (let us conservatively say 1% commission), you see a loss of 5.75%, which is a whole lot to cover when you would hope to get 10-20% on a trading maneuver. Common investors simply cannot get over that parimutual take. Obviously, there is a better chance when there is big market in the stock, such that the spread is smaller.
Since I have my computer set up to monitor stocks, I notice that the spread can vary greatly during a day. My impression, and only an impression, is that spreads are smallest at the end of the day. This may be because market makers are more comfortable at the end of the day; in the morning they are not sure what flood of orders may come.
The brokers have been getting some heat because they have been getting kick-backs from market makers for sending business their way. Hopefully this odious practice will be outlawed soon, as it means the broker's own best interest may be contrary to the investors.
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