Buying on the Bid

[FTSE Beater]

Hi All

I've heard many people talking about buying on the Bid and selling on the ask. I've seen a few US Stocks with very wide spreads - a whole 20c at sometimes

How does buying on the bid work, and can you do it through IB or do you need some super broker to do it.

Thanks in advance.

 

[Oldun]

Essentially you need a direct access broker and NL2

Oldun

 

[boy]

If you see a stock trading at say; $25.20/30 and you want to go long then put in a buy order at $25.22 and you will be the highest bid, Dont shoot me if I am wrong though.

 

[CityTrader]

Certainly for LSE stocks - all you need is either direct order book access ( say using GNI's " GNI TOUCH" ) or a broker who will accept limits. Just because you join the bid, doesn't of course mean you will buy at the bid....

 

[EvaLiq]

Hi,

Can someone explain to me how it is possible to buy at the bid?
For example, the current price for Vodafone is:
Bid = 123.75 Offer(ask) = 124.00

What I understand is that bid is the selling price or the price I
sell at. The offer or ask is the price I buy the stock at. So how
can you buy at the bid??

Regards,

Eva

 

[theknifemac]

As Wayno says above, you can simply join the bids by sending a buy limit order at 123.75 but this does not guarantee you will execute. If the spread was wider you could go best bid buy sending a limit order at the current best bid plus a tick.

Mac

 

[Trader333]

EvaLiq,

When buying on the bid you are "attempting" to get someone to sell a number of shares to you at the price you offer. So if the best bid is currently 123.75 then to improve your chances of buying you would place a limit order at maybe 123.76 Assuming that no-one jumps ahead of you then as soon as someone wants to sell they will sell to you because you have become the highest bid. As others have said there is no guarantee that you will be able to get the number of shares you want but if successful you have immediatley saved an amount of money depending on how many shares you are buying.

This practice is far more common on US stocks and in particular the Nasdaq.

I hope this helps


Paul

 

[oatman]

Bid = Buy Offer = Sell
If you want to buy at the offer you will pay the offer (price).
If you want to buy at the bid (price) you will join the other buyers and wait until there is enough volume offered to fill all buyers to your level.

 

[EvaLiq]

Thanks for the replies! However what I dont understand,
and what I think you are all saying is that if I want to buy
at the bid, my order goes and is listed into the bids column
in the Level II? But surely all the orders there are the bids
by MM's to buy and not to sell ? Am I missing something??

Regards,

Eva

 

[oatman]

That's where you and others want to buy. You must wait for somebody to have a contra view to yours and wants to sell at that price. Of course, as I think someone earlier pointed out, you are not guaranteed a fill. If someone thinks the market/stock/commodity or whatever is going higher and doesn't want to wait, then they will pay a higher price ie. the offer and move the market away from you. If they take everything out on the offer and bid over then you are "out" of the market. Maybe permanently.

 

[CityTrader]

There are no MM's for SETS stocks. The MM system only exists to the general public for SEAQ ( and AIM...)
For SETS you have as much priority as Goldman Sachs or anyone else . The prices are prioritised by price then time. size has NO influence what-so-ever on SETS ( completely different to SEAQ however)

Wayno

 

[options]

Eva, and anyone else confused by this.
If you go onto the cbot web site you can get the 'book' up for the mini dow.

This is where you have to change your view and start thinking like a market maker. It took me ages to get my head around this one some time ago. And you have the same confusing situation when trying to learn the L2 screen.

The buy orders are on the left and the sell on the right at present it is buy9392/9393sell.

Mirrored the wrong way to how the general public trade.
You were taught to buy at 9293 and when the price has risen past that you sell at the left hand price which is always lower than the one on the right.

When I first saw it I e mailed the cbot people and asked if it was the correct way around. They said yes, but didn't clarify. (Most helpful)

It is very confusing I know. I don't know if anyone else can explain it in clearer/simpler terms.

 

[oatman]

You've certainly confused me
Bid/offer have always been displayed or spoken in this way.
You must buy from the seller. Whether he comes to your price or you go to his is irrelevant. Hopefully when you sell at the "left hand" price it has risen :cheesy:
Similarly, if you quote a spread, you always quote the near month first whether you are buying or selling the spread.

Good luck.

 

[kinglatfan]

Professionals buy from us amateurs at the bid price usually when we are desperate. Professionals sell to us amateurs at the offer price also usually when we are desperate but for different reasons.

e.g VOD 120/120.25. Means the professionals will buy off us amateurs at 1.20 and seek to sell out the shares to other amateurs at 1.2025 thereby making .0025 per share. Look at the daily trading volumes of VOD and think about this.

If amateurs are able to buy at the bid and sell at the offer then they are being placed in the shoes of the professionals but remember that the professionals are always one step ahead of us amateurs.

In London GNI Touch do let you buy at the bid and sell at the offer but their commissions are very high. You work their order book for them and give them commission and assume all risk.

The Nasdaq seeks to place amateurs in the position of professionals by arguing transparency but again remember that professionals are always one step ahead of us amateurs.

Smart order routing (so called by the professionals) and limit orders are not quite as smart as the professionals would have us believe. With these orders you do not have total control on the floor of the market. The professionals will always be one step ahead of us amateurs but pre Nasdaq they would always have been two or three steps ahead.

Investment Books are two a penny but precious few give us amateurs an in depth appreciation of level two and buying at the bid and selling at the offer.

Why do you think Naz gets so excited?

Kinglatfan

 

[oatman]

I'll always be at a disadvantage so long as I run 64K ISDN and they've got 2megs. :cheesy:

 

[options]

And they say size doesn't matter!

Attached (I hope) is a shot of after hours e mini dow to show what I mean. Market is shut (Duh) so spread is wider. What you have to do is to stop thinking that you have to trade at the price shown to you. Which is basically one step removed from the sb prices. Turn it around. You don't deal at the offered price you deal at the price that suits you. You are making your own market.

So in theory you can put an order in the market to transact 3 points under from the 'real' buy price. The only difference is you won't get filled straight away. (The public's view of trading. (Instant fill.)) You might not get a fill at all.
No problem.
You cancel and try a difference price.

 

[CityTrader]

Kinglaftan. re GNI touch. 10 BP for CFD's not the cheapest but not too bad ( can deal for 7.5BP elsewhere without trying too hard)
A few professionals will "churn" on the order book to build market share, but trust me, VERY few are going to bother to punt Vod's for 1/4 p ..
I never use any of the discount brokers, but in your scenario of VOD being 120/120.25 I presume you can leave them a limit to (try) and buy at 120? if not. change brokers