Buying Examples
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The following example shows NITE, a market maker, in the active
market at the bid and SHWD, also a market maker, at the ask:
If you wanted to attempt to buy on the bid, you could bid for stock
along with NITE on Island. Island would appear just under NITE,
both showing the same price, say 30 1/8. By going alongside NITE in
this case, the two of you are what is referred to as national best bid
or offer (NBBO). You could also bid for stock at a higher price than
NITE, say 3/16. If you wanted to buy the stock at the ask, 30 1/4, you
would route to a SOES market. The preceding example assumes that
you are buying into the beginning of a rise in the stock price. Any
time you have any of 500 market makers at the ask, you can route a
SOES market order.
In the following case, you would use Island to buy on the bid
and SOES to buy on the ask:
electronic trading tactics 157
Here you would use SOES to buy on both sides:
Bid Ask
In this example, you would use Island to buy on both sides:
Bid Ask
In the following example, if price is moving up and it looks like
you are going to break through resistance at $40 3/8, you can bid for
the stock at $40 5/16. Should you get filled at that price, you can get out
at $40 1/4 if you are wrong.
If you want to short, expecting the stock to break through support,
you can enter on a plus tick or a zero-plus tick just above support,
$40 1/8 or $40 1/16. If you are wrong and a SOES market maker is on the
bid, enter a SOES market order. If a stock is running with momentum
and you want to enter, you hit whomever is at the bid or the ask to
enter the trade.
In this next example, you would want to use ARCA to hit the
offer (ask) because if INCA lifts its offer, ARCA will hit GSCO at 3/4 (the
same procedure would be used to cover a short position): In the following example, if you wanted to buy back 1,000
shares you would use ARCA to hit REDI for 500 and BRUT for the
other 500. This would fill your order at 11/16. This would be a better
strategy than trying to hit GSCO with a SOES order at 3/4. If GSCO is
refreshing, it has 17 seconds to fill your order, and a lot can change
in 17 seconds. Also remember the SOES five-minute rule. You have
to wait five minutes before you can buy or sell another 1,000 shares
using the SOES system.
The following example shows NITE, a market maker, in the active
market at the bid and SHWD, also a market maker, at the ask:
If you wanted to attempt to buy on the bid, you could bid for stock
along with NITE on Island. Island would appear just under NITE,
both showing the same price, say 30 1/8. By going alongside NITE in
this case, the two of you are what is referred to as national best bid
or offer (NBBO). You could also bid for stock at a higher price than
NITE, say 3/16. If you wanted to buy the stock at the ask, 30 1/4, you
would route to a SOES market. The preceding example assumes that
you are buying into the beginning of a rise in the stock price. Any
time you have any of 500 market makers at the ask, you can route a
SOES market order.
In the following case, you would use Island to buy on the bid
and SOES to buy on the ask:
electronic trading tactics 157
Here you would use SOES to buy on both sides:
Bid Ask
In this example, you would use Island to buy on both sides:
Bid Ask
In the following example, if price is moving up and it looks like
you are going to break through resistance at $40 3/8, you can bid for
the stock at $40 5/16. Should you get filled at that price, you can get out
at $40 1/4 if you are wrong.
If you want to short, expecting the stock to break through support,
you can enter on a plus tick or a zero-plus tick just above support,
$40 1/8 or $40 1/16. If you are wrong and a SOES market maker is on the
bid, enter a SOES market order. If a stock is running with momentum
and you want to enter, you hit whomever is at the bid or the ask to
enter the trade.
In this next example, you would want to use ARCA to hit the
offer (ask) because if INCA lifts its offer, ARCA will hit GSCO at 3/4 (the
same procedure would be used to cover a short position): In the following example, if you wanted to buy back 1,000
shares you would use ARCA to hit REDI for 500 and BRUT for the
other 500. This would fill your order at 11/16. This would be a better
strategy than trying to hit GSCO with a SOES order at 3/4. If GSCO is
refreshing, it has 17 seconds to fill your order, and a lot can change
in 17 seconds. Also remember the SOES five-minute rule. You have
to wait five minutes before you can buy or sell another 1,000 shares
using the SOES system.