This Blog Series covers some pretty complicated stuff and I recommend that you read Parts 1 and 2 before you attack this one - you can find them here:
Example 3 - You want to buy 3 Shares in Company XYZ - a ‘Tree-Shake’
This next situation only tends to happen on Small Stocks which are illiquid and where the actions of one Market Maker can affect the Price - on a large and liquid Stock, this kind of thing simply cannot happen as in effect it can throw up an arbitrage opportunity where another Market Maker can take advantage of the artificial Price move and in addition such big Stocks are watched by Traders in general for every tiny move and any mis-pricings would be quickly bought or sold away.
This subject is quite complicated so if you have not read the first Part then it is probably best to look at that first - you can find it here:
Example 2 - You want to buy 3 Shares in Company XYZ but this time you use a ‘Limit Order’
The basic Assumptions are as I listed at the start of Example 1. This time you still want your 3 Shares in XYZ but because it got kicked back at you in Example 1, you have decided to use a Limit Order through your Broker, where you indicate a maximum Price you are prepared to pay for the Shares. For this one, here are the steps as your Order flows through the various Processes:
It’s funny the things in life than can really get under our skin and something that really grates with me is when I see people on Twitter sending out a Tweet to the effect of “A big Buy for 200,000 Shares just went through on XYZ……” (heck, even just typing this is getting my Blood Pressure up !!).
Apart from the fact that the vast majority of people who Tweet sh*te like this are probably Rampers (or perhaps they are just not very clued up on what is really going on), the big issue with this is that if there is a Buy for any Shares then it is a simple truth that there is always one or more Sells on the other side. So if you are taking notice of a Buy Trade and thinking that this is a good thing, then you must be making the cognitive leap that whoever was on the Buy side knows more than whoever is on the Sell side. Without knowing who the individuals are, that is obviously impossible to know and even if you did know who was Buying, you are making an assumption that they are correct (no one is 100% right - even Warren Buffett gets things wrong).
MOST OF THE TEXT WHICH FOLLOWS, APART FROM THE PODCAST AT THE BOTTOM, I WROTE ABOUT A YEAR AGO BUT WAS NEVER HAPPY ENOUGH TO ISSUE AS A BLOG. IT IS OK NOW SO THAT’S WHY IT IS HERE IN FRONT OF YOUR BEADY PEEPERS…………HOWEVER, SOME OF IT MIGHT READ A LITTLE STRANGE AS IT HAD A TIME ELEMENT TO IT - APOLOGIES !!
I had Big Ideas to write something about the infamous ‘To Stoploss or Not To Stoploss’ debate - but the following subject area came into my head and it seemed sort of appropriate with Markets going through a pretty painful Correction at the moment. Additionally, Paul Scott on his Small Cap Value Report on Stockopedia wrote some very good text on this in the ‘Comments’ bit at the bottom either in his Friday 10th Oct or Monday 13th Oct update - he was ably assisted by inputs from several commenters. I will give my two-penneth worth in a future Blog Post. (Edit note 17th Dec 2015 - I did - link at bottom of this blog).
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