First off, I'm yet to make my first "official" trade... Currently I'm only watching and trying to understand what I see...... I have a question I think I know the answer to, but I want to make sure I'm clear My question is about order size.... If I want to place a small order, for example purposes let's say 1 share.. But nobody is selling just 1 share..... How will my order be filled?... Or more importantly, when I go to sell my 1 share, who will buy it?? Here's how I think it works.. I'll break my thoughts down into numbers, feel free to correct me on any of them if I sound confused 1).. When I'm looking at a live quote and pull down my level 2 or "depth" chart, I see a bunch of initials, sizes and prices...... These initials are not people like me, they are the "market makers" I've read about 2).. These "market makers" make their money off the spread weather the stock price goes up or down (to a reasonable extent).. So they will always be buying and selling to create the "liquidity" I've read about 3).. The "size" listed (10k, 100k, etc) is the total number of shares they are willing to deal at this given point... This is not a single order 4).. So if I pace an order for my 1 share, I'll be buying from or selling to one of these "market makers".. Not from someone else like me Example: ABCD... Size 500.. Ask $1.50 ABCD... Size 500.. Bid $1.45 So ABCD is dealing 50,000 shares (add two zero's).... I don't have to buy the whole 50,000.. If I place an order for 1 or 2.. Or 164 or 239 shares... He/she/they will sell or buy my specified number of shares, so long as I meet the current bid or ask price Am I clear on this?.. Or do I have anything mixed up here??
A "lot" consists of 100 shares of stock which is what the clearing houses use to get trades executed. One problem with buying split lots is that the very act of splitting a lot makes the stock less liquid. In other words it may take time for the purchase to go through or sale to go through. If you are buying split lots you should make sure that the 30 day average volume is at least 250,000 per day (preferably 500,000) as it will help insure some liquidity. The other thing that you have to watch for is the transaction fees. If you bought 1 share of a 100 dollar stock your cost basis would be 110 dollars and you would need to sell at 120 just to break even. The only way these small lots would work reasonably would be to trade in a very good company and not sell it but keep adding to it. Also using something like Robin Hood platform to eliminate the transaction fees. Admittedly this is not a "good" strategy other than to help get someone started.
Thanks!.. That sheds some more light So if I modify my question and speak in lots, is the rest correct? To say 100 or 200 shares instead of 1 or 2... I would still be liquid even if no one else is trading that small? Or to make the question more clear, does my buy order have to match exactly to another traders sell order?....... Meaning I wouldn't receive my 200 shares until someone else happens to be selling exactly 200 shares??
No, you can buy your shares in lots. There does not need to be someone looking to sell that EXACT amount. I saw in your other thread that you are using ThinkOrSwim paper trading now (TD Ameritrade). Just put in some offers and you'll see how quickly they all buy and sell. It wouldn't be nearly that quick if you needed to buy from someone selling an exact amount.
Want to focus on the word "order". If you place a market order, then you will probably pay $1.50 per share. The probability increases with the liquidity of the shares: e.g. usually if >600,000 shares are traded per day then you will get filled. What the broker does, is it combines your order with other orders (other retail traders using the same broker, for instance), and that can make a lot of 100 shares.
Perfect answers!... That's exactly what I was looking for, and then some @T0rm3nted i did exactly that with paper money, but since it's kind of a simulator I wasn't sure if it would work the same way on a live trade
