Wide spreads with the mid price unchanged disadvantage both buyers and sellers
an illogical statement, during times of market stress the mid price falls , otherwise their would be no stress.
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Wide spreads with the mid price unchanged disadvantage both buyers and sellers
Market makers can increase spreads because of market volatility. :
The Lyxor 0-5 year gilt ETF GIL5 appears to have lower spread than most ETFs, which I expect is a result of its low volatility:
colin wrote:Wide spreads with the mid price unchanged disadvantage both buyers and sellers
an illogical statement, during times of market stress the mid price falls , otherwise their would be no stress.
colin wrote:Market makers can increase spreads because of market volatility. :
To me this statement indicates a misunderstanding of why market makers set a spread, , when shares are falling during stressful periods it is because there are more sellers than buyers, in theory a market maker can set their offer price wherever they wish in reality they will choose to disadvantage the sellers in favor of buyers otherwise they run the danger of accumulating an inventory that they cannot shift before the price falls even more, remember that for the banks who engage in market making this is supposed to be a low risk way of making money, they have to sell stock quickly during volatile times or they run the risk of having to sell at a lower price than they bought the shares for, this is not what market making is all about so putting of buyers is the last thing they want to do.
Yes ETFS can trade at premiums and discounts but nothing like investment trusts.The Lyxor 0-5 year gilt ETF GIL5 appears to have lower spread than most ETFs, which I expect is a result of its low volatility:
Or maybe Lyxor are making the market and just want to see their fund traded more , in one other word it's the result of competition in the market.
Preference shares which are not often traded can have bid offer spreads of 5% . It is precisely because they are relatively iliquid and not often traded that their share prices are not usually volatile.
For every buyer there is a seller. There are never more sellers than buyers
The market makers set the spread, not Lyxor,
Lyxor's more volatile long gilt fund GILS appears to have consistently wider spreads than the short dates GIL5
Rapid falls in the market are accompanied by increases in volatility and increases in both share and ETF spreads
There is no point in adding to what I have said
Theoretically, the spread is directly proportional to the volatility
colin wrote:Theoretically, the spread is directly proportional to the volatility
oh really?
Santander preference shares
http://www.hl.co.uk/shares/shares-search-results/s/santander-uk-plc-10-38-non-cum-stlg-pre
bid offer spread = %2.8 of the offer price
Santander ordinary shares
http://www.hl.co.uk/shares/shares-search-results/b/banco-santander-sa-eur0.50
bid offer spread = .14% of the offer price
Any one can see from the performance charts which security is the more volatile.
I am not disagreeing with you if you are trying to say that bid offer spreads widen during times of market trauma, I remember when the equivalent spread on Santander prefs was 5%, I am disagreeing with you when you say that during such times the buyers are not advantaged relative to the sellers , and I am disagreeing with you when you imply that lower volatility securities have lower bid offer spreads. You can post all the links to theoretical studies you like but the facts are somewhat simpler and plain to see.
On Brexit day, FTSE 100 spreads were kept lower than the theoretical value because market makers were able to make money from the momentum. There is a lot of complexity in the details here.
colin wrote:On Brexit day, FTSE 100 spreads were kept lower than the theoretical value because market makers were able to make money from the momentum. There is a lot of complexity in the details here.
Well yes exactly, in the real world profits count not theory, you have just demonstrated that your contention low volatility = low bid offer spread is and always was nonsense. It is not an issue of complexity more an issue of your ideas not corresponding to reality, ie plain wrong.
Theoretically, the spread is directly proportional to the volatility
colin wrote:When you writeTheoretically, the spread is directly proportional to the volatility
What other meaning is one expected to take? the opposite of what you say? your reasoning is absurd!
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