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Lets say the bid is 49.98 and the ask is 50.01, the midpoint is 50. Is it possible to intentionally place limit orders at 49.99, have them filled, then place limit order at 49.98, have them filled, and continue placing lower and lower limit orders?

This is contrastingly different than short selling, where you are creating selling pressure, and hitting bids along the way.

This is just placing limits, getting filled by other people willing to sell at that price and repeatedly lowering your bid (and therefore the last quotations of the stock)

I'm not concerned about what is printed on the ask side of the book, because I know of PLENTY of computer algorithms that will only place an order once they see a price get filled on the tape.

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    That doesn't seems plausible unless the seller is being compensated in some other way or a private placement occurs between you and the seller. Why would a seller sell at a lower rate than the ongoing market rate and make a loss ? – DumbCoder Nov 18 '11 at 9:16
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You can choose to place successively lower buy limit orders, but whether they get filled or not is not a given; it depends on whether sellers care to accept your bid.

In your example of a 49.98 / 50.01 spread, if you place a buy with limit of 49.99, it won't get filled (if the order reaches the market while still at 49.98 / 50.01) immediately, but will be added to the order book. By being added to the order book, the markets bid and ask become 49.99 / 50.01. Your order won't get filled until some seller places a market order or a sell limit order of 49.99 or less. No guarantee that that will happen, and even if it does, there's nothing to say that your follow-up buy at 49.98 will ever be filled. In fact, your 49.98 buy order queues up at the "end of the line" behind all previously pending 49.98 bids, since your order arrived after those other bids. Since the initial conditions you supposed had a 49.98 bid, such an order exists (or at least did exist; it might have been cancelled in the intervening moment.

Basically, your first buy at 49.99, if it happens, has essentially no influence on whether your second buy at 49.98 will happen. You can't expect to move the market lower by making a bid that is higher (49.99) than the existing best bid (49.98). Whatever influence your 49.99 order has is to raise the market's price, not lower it.

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    "the markets bid and ask become 49.99 / 50.01." +1 - exactly right. Not sure why OP thinks the market will chase him lower. – JoeTaxpayer Nov 18 '11 at 12:14
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The strategy could conceivably work if you had sufficient quantity of shares to fill all of the outstanding buy orders and fill your lower buy orders. But in this case you are forcing the market down by selling and reinforcing the notion that there is a sell off by filling ever lower buy orders. There is the potential to trigger some stop loss orders if you can pressure it low enough. There is a lot of risk here that someone sees what you are doing and decides to jump in and buy forcing the price back up.

Could this work sure. But it is very risky and if you fail to create the panic selling then you risk losing big. I also suspect that this would violate SEC Rules and several laws. And if the price drops too far then trading on the stock would be halted and is likely to return at the appropriate price.

Bottom line I can not see a scenario where you do not trigger the stop, net a profit and end up with as many or more stock that you had in the first place.

  • I could be wrong, but I don't think the OP was suggesting filling the buy orders, only placing new ones. – Nicole Nov 18 '11 at 16:07
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    "...have them filled, then place limit order at 49.98, have them filled... " I am not certian how you would have orders below the current buy order price filled if you are not the one filling them. If you are waiting until they get filled then your buy orders are actually propping the price up since if your buy wasnt being filled someone with a lower buy would be. – user4127 Nov 18 '11 at 16:20
  • Thanks for the insight, although You may be taking the term "market manipulation" too literally, I suggest you read up on what the SEC actually prosecutes before spreading fear, because every single trade in existence "manipulates" the market – CQM Nov 18 '11 at 17:42
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    @CQM - if you're filling your own orders - that's definitely a market manipulation. I highly doubt its legal. The fact that SEC doesn't prosecute each and every case of market manipulation doesn't make it more legal. Its like speeding - you never get caught until you do, but it doesn't mean that you're not breaking the law all along. – littleadv Nov 18 '11 at 19:14
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    @CQM - Assuming it is legal. You are still going to need to have a starting reserve holding large enough to fill all real buy orders and then enough holdings to trade it downward and fill buy orders on the way down. So you are going to soak some losses there. You have to jump in with a buy orders at the bottom before you hit the trade stop, sufficient to prevent a mass sell off from reaching the stop but not so much that you are generating a buy buzz that encourages people to hold on to their shares. If I were a bookie I would give you about 20 to 1 against you coming out on top. – user4127 Nov 18 '11 at 19:42

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