A typical retail trader (a regular person just making a few transactions here and there on their lunch break) will likely follow a stock by looking at the price posted on mainstream stock-tracking websites, making any investment decisions from there. Professional traders go a little deeper.
Behind a stock's price, there's an intricate auction system of bid and ask. Bids represent orders to buy a stock and asks represent orders to sell (See: Bid and Asked). Tracking a bid tick means tracking the order flow on the bid side of the equation. Each bid tick indicates the movement in the bid price, whether moving higher or lower or holding steady.
A savvy trader can read the trend in the bid tick to garner micro advantages in the stock's movement. These kinds of additional benefits don't mean much for any particular trades (so aren't worth tracking for once-in-a-while types), but the additional value can add up over time if the trader is working in a high-volume environment.
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Finance: What is Spread?48 Views
finance a la shmoop. what is spread? before we start just no. get your mind
out of the gutter. spread refers to the money value between [100 dollar bill]
a bid and ask price under a market maker structure of trading securities. no more
wire hangers, a plastic hanger company is publicly traded on an exchange like
Nasdaq where buyers bid for a price to purchase and sellers ask for a price to [Nasdaq wall shown]
trade. no more wire hangers is bid this moment at 37:23 a share by buyers
willing to buy right now at that price and is being asked at this moment at a
price of 37.31. note the eight cents a shared difference in the share prices.
that dif is the spread between the two prices, and it's worth noting that in [bread is buttered]
extremely volatile stocks, the spread widens. and in boring highly liquid
stocks which don't move much, the spread tightens or is narrower. that is on a
volatile equivalent of no more wire hangers the spread might grow to 20 or
30 cents a share whereas a boring name that pays a big dividend and the stock
never moves much we're thinking AT&T here, [man snores at a desk]
well that spread might be just three or four cents. so why grow? well because a
market maker in a volatile stock doesn't want to be caught losing money on her
inventory. if no more wire hangers suddenly gapped down to 37.10 a share [equation shown]
well it would be likely less than the average of what the market maker paid
for her quote "inventory" unquote in that stock from which he was making a market
in it. each time the shares trade the market makers dip into that spread to [woman dips cracker in butter]
pay their bills and allow them to keep doing business. so that's spread. and it's
not the type that Prince used to sing about. [man on stage]
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