Are you sure that you are an investment banker? :cheesy:
This only applies to direct access trading, not spreadbetting. With spreadbetting you can only sell the bid or buy the ask, always paying the spread.
When you deal direct with an exchange and you place a limit order you become the bid or offer and wait for some other punter to take it with a market order. Of course it's not guaranteed to be filled as there could be any number of other limit orders at that price in front of you in the queue.
Which would enable you to be more profitable, day trading through buying stocks on the bid and selling on the offer through direct access trading with a typical 0.15% commission, or spreadbetting stocks with the likes of CMC where there are no trading fees?
I have not done any research into this yet.
I have made extensive use of buying on the bid and selling on the ask in my trading which I really used as a means to reduce transaction costs and I was doing this using IB.
What I would frequently do was to put in orders that were 0.001 above the bid or 0.001 below the ask and I would hide them so no-one knew I was sat there. So if say the bid was at $25.50 then I would place a limit order at $25.501 which I would also route to be hidden so that as soon as someone wanted to sell it would be me that got the order. Unfortunately this has all changed as now the minimum you can put your order above the bid or below the ask is 1c. Taking the above example I would have to put in a limit order at $25.51
Making money by doing this is known as "Capturing the Spread" but is nothing like as easy as it may seem. If there is a reasonable spread between bid and ask (say 10c) you have to ask why that is ? What it means is that traders are reluctant to trade at one of the prices and although you may get filled you can often find that as you do the market rockets against your position very quickly and that you have difficulty getting out.
As said by others it is not an easy way to make money and you have to have good tape reading skills and use Level II to be able to do it effectively. It is possible though and IB are as good as any company to do it with if you wish to go down that route.
perhaps I did not make myself understandable, therefore I will give an example.
BP BID OFFER
With CMC I would hope to buy at 482.5 or sell at 482.25.
With a DA broker I would hope to buy at 482.25 or sell at 482.5.
If for some reason I needed to exit immediately after entering, with CMC I would hope to lose only 0.25 points, whereas with a DA broker I would hope to make a 0.25 point profit. Therefore I clearly gain an advantage by trading within the spread with a DA broker.
However, this advantage does come at a cost - the commissions of approximately 0.15%.
What I am trying to find out is if this advantage within the spread gained through DA over the non-DA zero commission broker/booky (i.e. CMC) remains in tact after commissions have been deducted, or is it completely wiped out and more so?
I haven't done the maths as yet, but thought perhaps somebody else might have.