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House Price Crash Forum

Stock Pricing - A General Question


urban_hymn
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Am unfamiliar with Yahoo's share service, but I would guess that they are the maximum dealing size at the time, i.e. you could sell 60000 at 35p, but only buy 36000 at 35.5p. Sometimes different maximum dealing sizes give a clue as to where the share price might head- if you can sell more than you can buy it might suggest that the market makers are short of stock and the next price move might be upwards. This is especially likely if in addition the spread has become narrower than usual, as seemed to be the case with the figures you give for KMR (I stand to be corrected, but from memory I think they more usually trade on about 1p spread). Lo and behold it's up a bit today from the figures you had on 4/11.

Doesn't always work as a predictor though; if only it did...

Edited by Yonmon
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Just to complicate matters, some market makers allegedly create false signals sometimes, to sucker people into selling low or buying high.

Another consideration is that for small cap stocks, it's often possible to trade substantially "inside the strip", i.e. to buy at a lower price than the LSE-quoted offer price, and sell at a higher price than the official bid. So, if you don't have Level 2, it's often worth putting in dummy orders.

Edited by Yonmon
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Fine, Yonmon.

How about an example of the bid/offer at purchase, and at sale.

It would be interesting to see how much of your profits you gave up to MM's

The biggest "official spread" on a share I ever traded was WTH, which at the time was 70%. However, it was possible to both buy and sell inside the strip, so the "real spread" was about 45%. The price spiked as it was clear to me it would, and at the same time the spread closed., allowing me to exit with a 30% plus return on a holding of about 4 weeks.

I should add that I had watched the stock for almost a year before conditions became right for the trade.

It's an interesting philosophical question as to whether I gave up profits to the MMs, or not. But not one that troubles me unduly.

Edited by Yonmon
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