Bid vs Ask

[herph]

Hi all, nice place you have here. Really loads of good info. Thanks to everyone!

I'm just checking this out, conceptually, and am basically confused about how Bid and Ask work in application. I've tried to read through all the basic newbie stuff, and I think I get that the difference between Bid and Ask is essentially the "spread" where the exchange makes their profit. So I think that, say I'm trading the ES after hours, and there's nothing much moving, the Bid is 1369.00 and the Ask is 1369.25 and they're just sitting there. It seems that in the DOM window of my platform (I'm demoing R|Trader Pro) has the Bid price highlighted in orange, in this case 1369.00, which means that if I were to 'buy market' one what, share?, then I would buy it at not at 1369.00, but at the Ask at 1369.25. R|T indicates this by highlighting 1369.25 in blue. Alternatively,If I were to 'sell market', it would highlight 1368.75 in blue.

Ok, now I assumed that this meant that If I were to immediately turn around and flatten my position, I would sell at one tick above 1369.00 if I had gone long, or one tick below if short. Either way if I just entered then flattened without a price change in the market then I would be out the value of one tick, or $12.50 on the ES, plus whatever commissions and per-sides I owe my broker.

However, if I try this it ends up costing me the value of two ticks, or $25. Would someone be so kind as to explain this to me?

 

[ekalle2]

Your theory is correct. Buying the Ask and immediately turning around and selling at the Bid will typically result in a 1-tick loss ($12.50 on the ES) plus commissions.

If you're losing $25 and the Bid/Ask spread is 1-tick (typical for the ES), something is wrong. However, I have seen a 2-tick spread during after hours trading sometimes - in which case your situation would be normal - albeit somewhat rare.

You should probably be using limit prices especially when trading after hours. A good rule of thumb is to only use Market prices when things get really moving and you need to get in or out at whatever price is available.

 

[Rhody Trader]

I've tried to read through all the basic newbie stuff, and I think I get that the difference between Bid and Ask is essentially the "spread" where the exchange makes their profit.

Actually, the exchanges have nothing to do with the spread. They make their money on transaction fees, which are generally included in your commission. The spread is purely driven by market participants - often market makers specifically.

... So I think that, say I'm trading the ES after hours, and there's nothing much moving, the Bid is 1369.00 and the Ask is 1369.25 and they're just sitting there. It seems that in the DOM window of my platform (I'm demoing R|Trader Pro) has the Bid price highlighted in orange, in this case 1369.00, which means that if I were to 'buy market' one what, share?,...

One contract.

... then I would buy it at not at 1369.00, but at the Ask at 1369.25. R|T indicates this by highlighting 1369.25 in blue. Alternatively,If I were to 'sell market', it would highlight 1368.75 in blue.

Where does 1368.75 come from? If you are looking to sell at the market it would be at 1369 based on the 1369.00/1369.25 bid/ask you noted.

Ok, now I assumed that this meant that If I were to immediately turn around and flatten my position, I would sell at one tick above 1369.00 if I had gone long, or one tick below if short. Either way if I just entered then flattened without a price change in the market then I would be out the value of one tick, or $12.50 on the ES, plus whatever commissions and per-sides I owe my broker.

That's the way it should work if the market doesn't move at all following your first order being filled.

However, if I try this it ends up costing me the value of two ticks, or $25. Would someone be so kind as to explain this to me?

This seems to have something to do with how you mentioned 1368.75 above. Why is the platform showing your sell price as something other than the best bid 1369?