BSD
Veteren member
- Messages
- 3,819
- Likes
- 988
"This morning someone sold a few shares of BRK-B, the B shares of the Berkshire Hathaway company, Warren Buffett’s investment empire. This itself is not extraordinary, as there are around 70,000 shares traded every day, representing about $300 million of notional value.
What makes this morning trading activity different this morning is that when that person went to sell his stock, instead of getting the quoted price of $4,448 per share, he received $2,147, about 48% of what he expected.
This happened several times this morning; all told about 50 shares of BRK-B were sold at a 52% discount. The reason this happened is that somewhere a trader put in a limit-buy order for 50 shares at $2,147, with full knowledge that the trade would likely never get filled. These types of trades are usually protective measures to prevent paying too much for a stock or selling for too little. On the off chance, however, that the day’s sell orders burn through other, higher, limit orders, and the brokers aren’t actively trading, these ‘protective’ trades can become predatory, allowing someone to buy 50 shares at a 52% discount, making $115,050 over the course of a few minutes, simply by selling them back into the market at the higher, normalized price.
*Though usually legal (technically it’s simply bid/ask arbitrage), this is a pretty unethical way to make a buck. While one can argue that the seller should have protected himself with his own limit order, at the end of the day this is essentially a legal way to steal. It’s worth noting that I’m not the one on the buy side of this trade; nor am I saying that I wouldn’t be, given the opportunity."
Link:
Master of None - How to Make $100,000 by 11am*
Hmm.
I'd definitely be way beyond annoyed if that were me at the receiving end...
