Bid ask spreads

Bid ask spreads have changed dramatically in world markets over the past two decades. In regard to equities very dramatically, Derivatives not nearly as dramatic change as equities, let’s remember only a short time ago we used fractions not decimals. An equity would trade 40 ¼ by 40 ¾. That’s the way it was for decades. The higher the volume the tighter the spread, thinly traded equities would have ridiculous spreads 10 1/4 by 14 ½ typical not that long ago. So why did Wall Street go along with stream lining and tighten spreads so dramatically. VOLUME they simply traded in quality for quantity. That and the p.c. changed the game. More and More trading desks or platforms starting showing up, Competing markets did what they do. The fraction was out the decimal was in. This move historically is large. It is large, the baby boomer trading equities and the massive growth of the mutual fund. Allowed it to be so,

Over the last few years volume has slowed. And over the next decade it will slow dramatically, there is little debating the baby boomer is coming of retirement age. All 80 million of them, not only will their 401 k contributions be slowing they will be leaving and extracting volume from the Industry. It will be interesting to see how the exchanges will handle tight spreads with lighter volume. I don’t believe they can put the genie back in the bottle in regard to tight spreads. So will the trading platform industry shrink? Maybe you can already see their angle now, globe investors India China Bangladesh and others. They have huge demographics of young population billions of younger than 30 year olds.

But what if the Emerging markets start trading with their own platforms, the industry is on that one already too. It is the traditional trading desks who have set up shop in the emerging countries. So maybe there is nothing to worry about as far as the industry goes. But what about the derivative markets it takes decades to educated and complete a Derivative market trading platform with enough volume to control reasonable spreads. Even here in the United State’s we still have Derivative market makers playing tricks. And we have had Derivatives in this country for decades many decades. I purchased $1,000 worth of putt options just a couple years ago with two minutes to trade. On a company getting ready to report I played a hunch they were going to miss and the market was not expectation a miss of any size let alone a big miss. Most reputable firms wait at least 15 minutes after the close to announce. Not these crooks; 2 minutes after the close their it was with a big fat miss. I knew I had a score of some size it was matter of how big. Up early like all good traders are, felling out the market. Having your figure on the key at the open, Getting ready for what good traders use their instincts. I get an email 10 minutes before the open from my brokerage firm the trade has been broken the floor trader claims it was never filled. And a mistake had been made. I had been down this road before; he saw the early report and knew it did not take many brains cells to figure this one out. Even he knew it was going to be a score. And it was the 800$ was at the open worth about $ 50,000 they were very tight to expiration and way out of the money I paid 5 $ each for them I was the only trade for that particular strike that week.

Most Americans do not know this but it is a fact as an investor you cannot sue your brokerage firm or the market maker. Why you say ? I will tell you why; every brokerage firm in America makes you sign an Arbitration clause. Or you can not open the account. Who are the arbitrators you got it the brokerage firms. Trust me I know I had a case in 1994 against Charles something (you can figure that out) I had a slam dunk the arbitration board are members of the so called community. But this is a big but. They can be over ruled by the arbitration Board that over sees all arbitrations in-regard to brokerage firms. The Head of arbitrations got mine it took him weeks to rule which typically takes a day or two. Of course I lost everyone loses. In regard to spreads you have nothing to worry about on equities of large volume. On derivatives, Beware and stop orders Beware on all of those that’s a whole commentary. I will address that one later they are dangerous.