The Nickel Bid/Ask spread is about to start.

Broker Connectivity
1

It looks like the nickel BID/ASK spread is going to start for about 1,200 stocks according to this Bloomberg Article: High Speed Traders…

According to the article: “the strategy will boost profits for market makers.” That money for the market makers will be coming out of your pocket won’t it?

Will it affect your trading of lower priced stocks? For a $5 stock will that be 0.5% additional slippage (on average) each way? 1% additional slippage for a $2.50 stock? Maybe for larger market-moving purchases quantum jumps in price will make little difference in the final slippage total. I think it might be a little more subtle than the immediate obvious answer. But the market maker will be taking some money so the cost will increase some, I think. Won’t it?

Will you know which stocks actually have the nickel spread? Maybe your port will just stop working as well without being sure why?

Any thoughts how to change trading (if at all) are welcome.

Thanks.

Jim

2

You just have to figure out who is crying the loudest to see whose pocket it is coming out of. My observation is that HFTs had taken over from Market Makers with their high speed predatory algorithms. With MM’s being encouraged to come back and able to profit from the nickel spread, this means that HFTs won’t be able to do their high speed scalping anymore. Unless HFTs are defined as MMs, then they will make a fortune :slight_smile:

As for the little guy, I’m not sure it will make any difference.

My two cents USD (three cents CDN)
Steve

3

Thanks Steve.

Another quick question. This would not affect a market-on-open order would it?

4

No, just so long as you understand that the price will be resolved to the nearest nickel. I would worry more about VWAP algos.

Steve