Level 2, why not buy and sell to another participant?

[SanMiguel]

Random question but what is to stop someone who has level 2 access from just shorting a stock at 10 and then offering it to someone who wants to buy at 9? In a real life market, that's how things could be scalped, can't this be done intrading stocks?
ie does the market have to trade at a given level before this deal can be done

 

[Jaydee]

That's what scalpers do. The only issue you have if you are a retail trader is the fact that commission costs will be larger than the money you make from the spread. Also, you need to be on a fast connection.

What you are describing, though, is the purest form of scalping and a lot of 'local' traders do this. It has become more difficult in the last 5 years due to the increase in high frequency trading algos.

 

[pboyles]

Random question but what is to stop someone who has level 2 access from just shorting a stock at 10 and then offering it to someone who wants to buy at 9? In a real life market, that's how things could be scalped, can't this be done intrading stocks?
ie does the market have to trade at a given level before this deal can be done

What happens if nobody wants to buy it at 9?

 

[SanMiguel]

That's what scalpers do. The only issue you have if you are a retail trader is the fact that commission costs will be larger than the money you make from the spread. Also, you need to be on a fast connection.

What you are describing, though, is the purest form of scalping and a lot of 'local' traders do this. It has become more difficult in the last 5 years due to the increase in high frequency trading algos.

I can;t find any software in the UK that seems to allow that kind of trading though.
You have to wait for the market to move down to 9 before you can sell it to them. Shouldn't you just be able to sell it to them even if the market is at 10.

 

[SanMiguel]

What happens if nobody wants to buy it at 9?

What I mean is if you can see someone in the order system who wants to buy at 9.
Why not have software where you can just click and immediately offer to that individual buyer.
You make an immediate 1 and he makes an immediate 1 even though the market hasn't moved from 10.

 

[Jaydee]

What happens if nobody wants to buy it at 9?

Therein lies the risk.

Also SanMiguel, if you are short at 10, then you would bid (not offer) at 9 - someone would have to sell at 9 to you.

 

[SanMiguel]

Therein lies the risk.

Also SanMiguel, if you are short at 10, then you would bid (not offer) at 9 - someone would have to sell at 9 to you.

Yep, sorry
As above, if you can see someone in the system offering at 9.
I haven't seen a L2 system where you can pick that individual because the market price is still at 10.

 

[Jaydee]

Any broker that gives you level 2 and DMA should be able to provide you with this. If 9 becomes the best offer after you got filled at 10. Then there is no reason why you can't lift 9 and make a quick tick.

 

[MrGecko]

I thought that Stocks and futures do it differently, i.e. in futures anyone can join the bid/offer, but in Stocks it's only designated market makers / specialists that get to trade at inside prices?

 

[SanMiguel]

Any broker that gives you level 2 and DMA should be able to provide you with this. If 9 becomes the best offer after you got filled at 10. Then there is no reason why you can't lift 9 and make a quick tick.

Why can't you buy off the worst offer.
Say you shorted at 10, the best offer remained at 10 for the next few mins but you can see a limit in the system at 9, why not just take that straight away bypassing the 10.

 

[Jaydee]

I thought that Stocks and futures do it differently, i.e. in futures anyone can join the bid/offer, but in Stocks it's only designated market makers / specialists that get to trade at inside prices?

I trade my CFD SIPP through E-trade (now Saxo) - that allows me to join the bid and offer. So, may be you can't with Equities themselves but you can with an Equity Deriv.

 

[Jaydee]

Why can't you buy off the worst offer.
Say you shorted at 10, the best offer remained at 10 for the next few mins but you can see a limit in the system at 9, why not just take that straight away bypassing the 10.

I'm a bit lost here San Miguel. If you sell at 10 and there is a limit offer in the system at 9. The best offer is now 9 (the person who is offering, is now selling lower than 10 making it the best offer). Therefore, you should be able to get the 9 straight away.

 

[N Rothschild]

because you cant hit someone else when someone is showing better bid.

if someone is bidding 10's i cant sell to someone bidding 9's as you would be going through the best bid.

why would you want to do that anyway is beyond me as you would lose money. why sell to someone for less than you can get?

 

[Jaydee]

because you cant hit someone else when someone is showing better bid.

if someone is bidding 10's i cant sell to someone bidding 9's as you would be going through the best bid.

why would you want to do that anyway is beyond me as you would lose money. why sell to someone for less than you can get?

I think he wants to buy after getting short at 10

 

[dcraig1]

Why can't you buy off the worst offer.
Say you shorted at 10, the best offer remained at 10 for the next few mins but you can see a limit in the system at 9, why not just take that straight away bypassing the 10.

The exchanges apply order matching rules to match buyers and sellers. Mostly, I believe they publish a full description. Google is your friend.

 

[N Rothschild]

I think he wants to buy after getting short at 10

hows he gona do that? you can only see bids below the market not offers..

 

[Jaydee]

hows he gona do that? you can only see bids below the market not offers..

I took it that he got filled at 10 (by offering @10). Then someone else offered 9, so he would lift 9.

 

[glyder]

I don't think it will work with stocks - the LSE members rules won't allow trades outside the market price spread, what he wants to do is effectively create a new market price. Its not going to happen if there are better bids.

 

[Jaydee]

I don't think it will work with stocks - the LSE members rules won't allow trades outside the market price spread, what he wants to do is effectively create a new market price. Its not going to happen if there are better bids.

Yeah, you'd have to do it synthetically via CFDs.

 

[SanMiguel]

I don't think it will work with stocks - the LSE members rules won't allow trades outside the market price spread, what he wants to do is effectively create a new market price. Its not going to happen if there are better bids.

Sorry, I was mixing up the bid/offer.
Let's say HSBC is 613.50/613.70.
I short at 613.50.
I now need to buy to close my trade and need to find a seller but all the sellers are currently at 613.70.
However, what if someone placed a limit order in the system to short at 600, why couldn't I just do a trace with them immediately? They'd be stupid to sell at 600 when the market is at 613.70 but that's their offer.