| T.R | Title | User | Personal
Name | Date | Lines |
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| 793.1 | | CAPNET::ROSCH | | Mon Nov 21 1994 15:30 | 15 |
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1. The stock market NYSE is an auction market and there are minimum
bids. This is called a 'tick'. The 'tick' is the smallest significant
number a stock will move. Sometimes 'penny stocks' are quoted in
sixteenth's.
In bonds the price is a % of par - which is nearly always $1,000.
The 'tick' on a bond is a %, not a dollar amount.. For Corporate bonds
the tick is eighths and for Governments (eg: Treasury's) it's expressed
in thirty-seconds. (Governments trade in much larger blocks than
Corporates. A round lot for Governments is $1,000,000. So a
thirty-second for a Government is necessary. eg. A one-eighth spread
between the bid and ask for a block of $10,000 (10M) amounts to $12.50.
A one eighth spread on $1,000,000 (1MM) is $1,250. This is too big.)
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| 793.2 | | CAPNET::ROSCH | | Mon Nov 21 1994 15:35 | 7 |
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2. The DJIA is composed of 30 Industrial stocks. If you add them all up
and divide by 30 you get the DJIA. Sort of... To account for splits,
replacement stocks etc. you multipy the number by a magic number -
which I used to know but forgot - and you get the DJIA. It's this magic
number which has all those digits.
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| 793.3 | | NAC::OFSEVIT | card-carrying member | Mon Nov 21 1994 15:52 | 9 |
| re .1: But why are the "ticks" set at values that don't match the
currency? And, by the way, why are home mortgage rates often but not
always also quoted in increments of 1/8%? I think it's all
anachronisms.
re .2: I understand how it's computed, but not why the resulting
insiginificant digits are reported as if they meant something.
David
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| 793.4 | Something else must trigger bid's in 16ths? | 12368::michaud | Jeff Michaud, UC1 | Mon Nov 21 1994 15:52 | 7 |
| > 1. The stock market NYSE is an auction market and there are minimum
> bids. This is called a 'tick'. The 'tick' is the smallest significant
> number a stock will move. Sometimes 'penny stocks' are quoted in
> sixteenth's.
Don't forget that this past summer DEC stock also closed one
day at some x/16 amount. And we're not a penny stock [yet! :-)]
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| 793.5 | | PCBUOA::KRATZ | | Mon Nov 21 1994 17:11 | 6 |
| Anybody catch this a while back: the day after the NASDAQ got hosed for
supposedly only using 1/4 increments for their big guns...
Intel, the volume leader that day, closed at something like 61 13/64.
Wasn't that an amazing coincidence ;-)
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| 793.6 | | 12368::michaud | Jeff Michaud, UC1 | Mon Nov 21 1994 22:38 | 5 |
| > Anybody catch this a while back: the day after the NASDAQ got hosed for
> supposedly only using 1/4 increments for their big guns...
Is this why to this day NASDAQ stocks seem to have a much
larger spread between bid/ask than NYSE issues?
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| 793.7 | | CAPNET::ROSCH | | Tue Nov 22 1994 09:43 | 7 |
| The increments are half of halfs so it's 1, 1/2, 1/4, 1/8, 1/16, 1/32
I imagine that this is better than asking 25.50 and there's a bid for
25.47, so the counter is 25.49 etc.
In a book on Stock Brokerage Math the author suggests that you just
memorize the decimal equivalents and be done with it instead of
calculating them everytime for eighths and sixteenths.
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| 793.8 | Preserving the spread | MARVA2::BUCHMAN | UNIX refugee in a VMS world | Thu Dec 29 1994 16:00 | 20 |
| Why use fractions instead of decimals? the straightforward answer is
inertia: it's always been done that way. The more cynical answer is
that it allows brokers to preserve the spread between a stock's "bid"
and "asked" price -- the price for which you may sell a share to them,
and the price at which you may buy it from them. Brokers make money on
the difference (as well as on commissions), which is why brokers love
high market volume. So if DEC is 35 bid, 35 � asked, a broker makes an
instant profit of 25 cents a share whenever he buys from you and sells
to someone else. If prices were expressed in decimal, though, it would
be easier to change the bid/asked spread. More competitive brokers
might start narrowing the spread to 35.05 / 35.20, and the spread is
now only 15 cents a share.
NASDAQ was recently accused of that very thing: keeping the units large
to keep the spread (and their profits) up. It was felt to be a tacit
agreement among brokers to continue dealing in �'s for that reason. As
pointed out, though NASDAQ denies using anticompetitive practices, we
have been seeing more of the small units recently.
Jim
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| 793.9 | | NETRIX::michaud | Jeff Michaud, UC1 | Thu Dec 29 1994 19:30 | 5 |
| Re: .8
As discussed in other note, I believe the brokers do *not*
get to pocket the spread. The brokers get the commision, the
*traders* are the ones that make their money on the spread (?)
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| 793.10 | I believe its whoever makes a market in the stock. | ZENDIA::FLEMMING | My other car is a modem. | Fri Dec 30 1994 06:18 | 1 |
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| 793.11 | "makes a market"? | NETRIX::michaud | Jeff Michaud, UC1 | Fri Dec 30 1994 09:51 | 3 |
| > I believe its whoever makes a market in the stock.
?
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| 793.12 | | NOVA::FINNERTY | Oracle Rdb Engineering | Fri Dec 30 1994 11:06 | 7 |
|
see the TRADING conference for an extensive discussion of this. yes,
the NASDAQ market makers keep the spread; that's how they get paid.
The commission is how your broker gets paid... if your broker makes a
market in the stock, you should theoretically get a better price, but
you might not.
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| 793.13 | | NETRIX::michaud | Jeff Michaud, UC1 | Fri Dec 30 1994 11:34 | 13 |
| > see the TRADING conference for an extensive discussion of this.
Is this a new conference because I don't see it listed in
my 10 months old easynotes.lis? (ie. please provide pointer :-)
> yes, the NASDAQ market makers keep the spread; that's how they get paid.
> The commission is how your broker gets paid...
"market makers" mean the same thing as "traders"?
> if your broker makes a market in the stock, ....
What does "makes a market in the stock" mean?
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| 793.14 | Of markets and Makers | EVMS::HALLYB | Fish have no concept of fire | Fri Dec 30 1994 13:20 | 28 |
| > Is this a new conference because I don't see it listed in
ABACUS::TRADING
> "market makers" mean the same thing as "traders"?
> What does "makes a market in the stock" mean?
A "market marker" is one who "makes a market" in a stock (bond, etc.)
To "make a market" means to stand ready to buy or sell a given stock.
A "market-maker" in MSFT would, as I write this, be willing to buy
MSFT for 61 3/8 a share and would be willing to sell MSFT at 61 1/2
a share.
The market maker has no underlying feelings or loyalty for a stock.
All they want is action. Every buy/sell pair generates a profit on
the spread between buy and sell price. On NASDAQ they are required
to post bid/ask prices for a minimum of 5,000 shares of their stock.
At the CBOE (options exchange) option market-makers are required to
post bid/ask prices on a 10-lot (1000 shares). The AMEX specialist
in SPY pledges to buy or sell up to 50,000 shares at a 1/32nd price
differential.
Their short-term in-and-out trading style helps make American markets
the most stable, most liquid markets in the world. Though the USA is
facing increasing competition in this area. That's good.
John
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