Questions, Questions, Questions..

[dewbpy]

Hello there

I'm fairly new to the world of trading - although I have been paper trading for about a year now and have recently bought some shares which I'm pleased about.

Whilst I'm still evolving my strategies for stock picking etc... I have a few questions that I haven't been able to find answers for and was hoping you could help me out.

- Market Makers - what exactly are these? Are they people, computers - do they own shares, where do they work?

- Share prices - Who or what controls the price of a share? When a share goes up or down, did someone type in a number on a computer to make it change?

- Ask-Bid spread. Why is there a difference in price between buying and selling a share at one point in time. It's not like a car losing value after multiple owners or mileage.

- I read that some of you trade with US stocks. How do you do your research on the companies. I thought it was a good thing trading with UK stocks as you are familiar with the products, shops, public opinion etc...

Hope you can help

Thanks

Simon

 

[Newtron Bomb]

Market Makers - what exactly are these? Are they people, computers - do they own shares, where do they work?

simply put these are people who guarantee to buy or sell the shares of a company at any given time therefore "making a market" for that companies shares

Share prices - Who or what controls the price of a share? When a share goes up or down, did someone type in a number on a computer to make it change?

supply and demand... the scope of the answer for this question could become infinite books have been devoting to the subject of explaining this.

Ask-Bid spread. Why is there a difference in price between buying and selling a share at one point in time. It's not like a car losing value after multiple owners or mileage.

I tend to remind myself that the stock market is one giant auction there is always a buying price and a selling price with anything that is for sale... it is not a question of the item in question loosing value it is more like the guy in the middle taking their cut like a broker taking commissions for "dealing with the transaction" for you on your behalf.

I read that some of you trade with US stocks. How do you do your research on the companies

Everyone has there own methods some are chart based and look for patterns or setups based on TA and some use FA researching news items and economic indicators. There are a lot of books devoted to each subject. Some if not most find a balance of TA and FA to trade with.


There has been a number of discussions on these boards about each of your questions and you can find out more by doing a simple search under search for a post.
I dont consider the answers sufficient enough for you they are just a quick one liner to give you and idea. I am sure the next person may not agree with my interpretation

HTH for now

 

[FTSE Beater]

Hi dewbpy

Welcome to T2W

I'll try and answer these questions as best I can.

Market Makers - They used to be people controlling the buying and selling of shares. It's now all done with computers. Their job is to make sure the market keeps moving, and make sure there is enough buyers for the sellers.

Share prices - The price is controlled by the number of buyers and sellers. If there is more buyers than sellers, then the price goes up and vica-versa. Purely demand and supply.

Ask-Bid spread - The difference is the amount of money that goes to the market maker. If Vodafone is quoted at 130 to sell and 130.25 buy. If someone buys 1 share, then someone has to sell 1 share. The market maker picks up the difference for "arranging" the deal. In this case they make 25p - multiply that millions of times over and it becomes a nice sum of money. There will usually be a difference so the market makers can make money.

US Stock trading- With US trading most of us trade on a short time basis and don't need to know about the company, and the US is more profitable to trade. If your investing then trading the UK is easier because you know something about the company. Most US traders don't care what the company does.

HTH

Looks like Newtron beat me to it

 

[dewbpy]

Thanks for the replies Newtron and FTSE Beater, they were very helpful.

Simon

 

[CityTrader]

FTSE- beater. sorry, but market makers still exist for ALL non SETS stocks in the UK. They do use computers, but all prices are quote driven. They do have positions.
In your Vodafone example, the ask- bid spread does NOT go to the market maker. firstly, SETS stocks are order driven. Secondly, You'll very rarely find a trader being the best bid, AND the best offer , unless he has 2 way orders from clients, OR he's " churning" stock to increase his market share. Even in market making stocks, the chances of a market maker finding a buyer and a seller simultaneously ( i.e so he can deal on both sides of his spread) are extremely rare.

Why on earth do you say the US is more profitable to trade? surely you mean you've found it easier? Sure there's more liquidity in a higher number of stocks, but if you're only after liquidity- the main FTSE 100 constituents are very liquid.