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  1. #11
    Senior Member humble_pie's Avatar
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    Quote Originally Posted by james4beach View Post
    humble_pie is right, when there's poor liquidity there is an art of the trade and you can do quite a bit. But it does take time. I was writing from the perspective of someone who wants an immediate fill.

    If you're willing to space it out over time, as humble says there are games that can be played. I agree that these games must be started early in the day. If you're trading after 3 pm for example, just meet the ask and be thankful for any decent fill.


    the actual B/As we see are mostly algos set to capture retail investors who are gullible enough to believe that they have to sell to the bid or else pay to the ask, exactly as you have advised above.

    it takes no more time to look at markets with a smart three-dimensional kind of approach, in order to see which prices are for real & which are the algos.

    imho it takes much longer to work up a two-dimensional math-correct approach, for the simple reason that it kow-tows to the algos. As illustrated above.

    "Example 2 (above)" "Pay what the seller demands."

    "Example 3 (above)" "This is much too difficult for poor lil ole me to think about. Give it up."


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  2. #12
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    Quote Originally Posted by james4beach View Post
    The reason you set a limit price is to protect yourself from a horribly bad fill and assure that you know the worst possible fill price. ...
    ...
    Example 3, the quote shows
    bid: 16.48
    ask: 16.68
    ask size: 100 shares

    This is a stock with very poor liquidity. If you were to do a market buy order, you'd pay MORE than 16.68 because, as in the previous example, only 100 shares would fill at 16.68 and the rest would fill at god knows what price. In this case I probably wouldn't buy the stock.
    Quote Originally Posted by james4beach View Post
    humble_pie is right, when there's poor liquidity there is an art of the trade and you can do quite a bit. But it does take time. I was writing from the perspective of someone who wants an immediate fill.

    If you're willing to space it out over time, as humble says there are games that can be played. I agree that these games must be started early in the day. If you're trading after 3 pm for example, just meet the ask and be thankful for any decent fill.
    Quote Originally Posted by humble_pie View Post
    ...
    "Example 3 (above)" "This is much too difficult for poor lil ole me to think about. Give it up."
    When there is algorithms involved on the large cap stocks they usually provide enough liquidity to accommodate the retail investor, so that the retail investor need only decide if now is a time to buy - they are not going to move the market and market depth is largely irrelevant.

    On the illiquid stocks, I don't think they need to be avoided but position size should be considered, some advice I read years ago I thought was pretty good was to keep your position size to less than an average day's volume for the stock. I won't argue against placing orders early in the day as often there is more volume early in the day and big intraday price movements, if any, are likely going to be due to something you weren't basing your order decision on anyway.

    Thinking about how I started out with illiquid non-dividend microcaps years ago, my better results happened when I found a stock that looked good to me but hadn't attracted attention yet allowing me to accumulate a position, and then waiting until it did attract volume and price movement allowing me to sell. A good entry point mattered a lot to results, and playing the bid/ask part of the game as outlined in earlier posts was almost a necessity just because I was working with so little cash and no borrowing. From first buy to selling often took months or more than a year to see the company move forward allowing my reasons for buying the stock to be fulfilled - or not. Where I am now in life I can't allocate much capital or time to these stocks but they are how I managed to save money without spending it, those little stocks were more interesting than watching a bank balance.

    There are some good quality illiquid stocks that provide decent returns and/or stability.

  3. #13
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    The original question was about ETFs. My experience with low volume ETFs has been that the market maker moves the bid and ask, maintaining a constant spread, according to the underlying NAV and not in response to people coming along with small orders. You can tell which is the market maker because of the large number of shares on the bid/ask.

    Other small investors may jump in, so you may see someone take your limit price, but once that activity clears the field you will see the same market maker's pricing. So you can take your chances and do a limit buy that is below the asking price, but whether or not it fills is a gamble. You could also get lucky and the NAV could shift in your direction, hitting your limit price.

    But I really don't think the market maker is shifting their ETF bid/ask in response to a retail investor's buying or selling interest. From what I've seen, it's quite static and based on NAV.

  4. #14
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    Quote Originally Posted by james4beach View Post
    The original question was about ETFs. My experience with low volume ETFs has been that the market maker moves the bid and ask, maintaining a constant spread, according to the underlying NAV and not in response to people coming along with small orders. You can tell which is the market maker because of the large number of shares on the bid/ask.

    Other small investors may jump in, so you may see someone take your limit price, but once that activity clears the field you will see the same market maker's pricing. So you can take your chances and do a limit buy that is below the asking price, but whether or not it fills is a gamble. You could also get lucky and the NAV could shift in your direction, hitting your limit price.

    But I really don't think the market maker is shifting their ETF bid/ask in response to a retail investor's buying or selling interest. From what I've seen, it's quite static and based on NAV.
    I agree James though with thinly traded options where bid & ask have huge spreads & thinly traded. Such as no trades going through on a given day. I have placed limit orders seconds latter the ask or bid will drop closer to my bid or ask. Even though volatility has been stable & no price movement in bid /ask for the day. Have seen it happen to many times to be coincidence. Though high volume index like spy I do not think I effect bid/ask spreads

  5. #15
    Senior Member humble_pie's Avatar
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    Quote Originally Posted by james4beach View Post
    The original question was about ETFs. My experience with low volume ETFs has been that the market maker moves the bid and ask, maintaining a constant spread, according to the underlying NAV and not in response to people coming along with small orders. You can tell which is the market maker because of the large number of shares on the bid/ask.


    interesting commentary from jas4 re buying ETFs. I have little experience with ETFs so i bow to james' expertise.

    turning now to setting price limits in general, this is the thread topic. The title is not limited to ETF transactions only, although the OP added a note that this sub-topic is what interests him.

    still, the broader topic has a lot of merit. What i'd like to do is question the notion - expressed upthread - that investors buying or selling a thinly-traded illiquid security must always sell to the bid or pay to the ask.

    in fact, it's not uncommon to see cmffers advising others that, when buying an illiquid, they should place orders that are higher than the ask price.

    it's also common to see the same cmffers advising that investors *must* accept level II quotes as the whole truth, the plain truth & nothing but the truth. Whereas, in reality, there are all kinds of dark rooms & surreptitious players including fake players with hidden orders, so level II quotes are simply data to check out, nothing more.

    the Bid/Asks are set by logarithms from busy market makers who don't really care about illiquid markets. There's not enough business in thinly-traded securities to be profitable for them, so they're not willing to spend any time managing the market.

    if a novice is naiive enough to pay to the logarithm ask or sell to the bid, the MMs will be happy to take the money. Otherwise they won't be paying any attention.

    how to get their attention & work a fair price in these circumstances? just upthread lonewolf posts how he has noticeably had these happy experiences in options. There are ways to get the MMs' attention, ways to start up a pricing dialogue.


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    - poor girl, she's going to be Ex No. 3
    - so do you think she knows already?

  6. #16
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    Also worth noting that if one of us shows up on the ticker with a bid limit, and another CMF'er (or any retail investor) wanders onto the same ticker with an ask limit ... we can make a trade between us retail investors no matter what the market maker/institution wants.


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