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7

The equation you show is correct, you've simply pointed out that you understand that you buy at the 'ask' price, and later sell at the 'bid.' There is no bid/ask on the S&P, as you can't trade it directly. You have a few alternatives, however - you can trade SPY, the (most well known) S&P ETF whose price reflects 1/10 the value or VOO (Vanguard's ...


7

A "market maker" is someone that is contractually bound, by the exchange, to provide both bid and ask prices for a given volume (e.g. 5000 shares). A single market maker usually covers many stocks, and a single stock is usually covered by many market makers. The NYSE has "specialists" that are market makers that also performed a few other roles in the ...


7

Bid = 38.99 x 6800 Someone wants to buy 6800 shares at $38.99 each. Ask = 39.00 x 4300 Someone wants to sell 4300 shares at $39.00 each. When someone's bid price matches someone's ask price, you've got a transaction.


7

Mathematically it's arbitrary - you could just as easily use the bid or the midpoint as the denominator, so long as you're consistent when comparing securities. So there's not a fundamental reason to use the ask. The best argument I can come up with is that most analysis is done from the buy side, so looking at liquidity costs (meaning how much does the ...


6

You won't earn money trading on the spread, you will lose money. For there to be a transaction the bid and ask price will need to match. So to buy you need to match the lowest ask price, and to sell you will need to match the highest bid price. The larger the spread the more you will lose. Usually if there is a large spread there will be no transactions ...


5

Market makers make the spread on market orders, only. A market order is one in which the retail buyer/seller says fill the order immediately at whatever is the best price. The market maker is buying the market-sells at the bid and selling the market-buys at the ask. If the market-buy volume equals the market-sell volume then the market maker is just ...


4

If the short leg is assigned early, the broker cannot immediately exercise the other leg, because the assignment notification process occurs overnight. The offsetting exercise obtains the needed cash or stock, but only the trading day after it was needed, incurring one day's interest. See this question.


3

As you probably know, a credit spread involves buying a call (or put) at one strike and selling another call (or put) at another with the same maturity, so you're dealing with two orders. Your broker will likely have to fill this order themselves, meaning that they'll have to look at the existing bid/asks for the different strikes and wait until the ...


3

On expiry, with the underlying share price at $46, we have : the $45 call has an intrinsic value $1 which equates to $100 = 100 x $1.00 the $40 call has an intrinsic value $6 which equates to $600 = 100 x $6.00 You ask : How come they substract 600-100. Why ? Because you have sold the $45 call to open you position, you must now buy it back to close ...


3

Investopedia does a perfectly fine job of explaining it: The percentage difference in current yields of various classes of high-yield bonds (often junk bonds) compared against investment-grade corporate bonds, Treasury bonds or another benchmark bond measure. So ... if a lot of people are buying junk bonds (i.e. reach[ing] for yield), those bonds' prices ...


3

First, what structure does your index fund have? If it is an open-end mutual fund, there are no bid/ask spread as the structure of this security is that it is priced once a day and transactions are done with that price. If it is an exchange-traded fund, then the question becomes how well are authorized participants taking advantage of the spread to make ...


3

Joke warning: These days, it seems that rogue trading programs are the big market makers (this concludes the joke) Historically, exchange members were market makers. One or more members guaranteed a market in a particular stock, and would buy whatever you wanted to sell (or vice-versa). In a balanced market -- one where there were an equal number of buyers ...


3

Here is a direct answer from investopedia I won't rewrite the answer here, but you are spot on. It is just an absence of liquidity. Edit: I hope you don't mind me taking the answer a step further, but the high bid ask spread is one of the reasons ah trading is more difficult. If you incorrectly put in a bid order with a price $10 over the lowest ask, ...


3

If you only need to buy stuff online you could consider using paypal perhaps? If you really need an bank account, you could also look at an offshore bank account, HSBC has accounts in multiple currencies, but you will need to be eligible (have a ton of money and provide some documentation).


3

All B/A spreads are bad because the stock must move that much for you to break even, ignoring commissions. Both are part of the cost of doing business, as are borrow costs for shorting. The objective is to make money on the trade not pay less spread. You can weight the B/A spread any way that you want for your programming but it won't change actual ...


3

Ok, there are a few things to say here. If you don't understand a charge on your account, then you should be asking the company, not a bunch of people on the internet. You need to review your understanding of how spreadbetting companies make money. The spread is not the only way. Have you taken into account forex ? SPY will probably be USD denominated, ...


3

I've seen the plots for Call Spread Inequality, Put Spread, Butterfly, and some others, and this is the first time that the line showing the outcome of an option is not made of straight lines. The short answer is that Vertical, Butterfly, and Iron Condor spreads etc. have the same expiration. A Calendar Spread does not. At expiration, a call is worthless ...


2

The location that you are purchasing from is not really relevant. If you use either a Visa or MasterCard to make a payment in a foreign currency of any kind then your payment will automatically use Visa/MasterCard's FX platform. Whilst fees can vary between issuers, the fee is generally fixed at 2.5%. There are occasionally credit card issuers who have ...


2

Bid and ask prices of stocks change not just daily, but continuously. They are, as the names suggest, what price people are asking for to be willing to sell their stock, and how much people are bidding to be willing to buy it at that moment. Your equation is accurate in theory, but doesn't actually apply. The bid and ask prices are indicators of the value ...


2

You can trade an index by using a Contract For Difference, or CFD. Various brokers offer this method and the spreads are quite low. They tend to widen outside of market hours, and not all brokers offer the same spreads. I would look for a broker that offers the lowest spread on the index you are interested in. You should also do your due diligence and ...


2

They are two completely different trades and should be used for different purposes. If you are doing a credit spread you (should) have an opinion about market direction and the spread will benefit from you being correct. Also, remember that with a credit spread (bull call for example) the underlying price can go up and up and up to the moon and you will ...


2

Figured it out. Vertical spreads significantly reduce the amount of "buying power" on the account needed vs. buying / selling pure calls / puts. So even though the transaction fees may more double in some instances, it may be worth it in order to operate with pricier underlying instruments. Spreads are also considered "defined risk" trades where both the ...


2

See Nick R's answer for the explanation of the concepts. If you want to find out whether it's the 2 year, 3 year or 10 year spot on the treasury curve that is being used as the risk-free yield, you need to know the weighted average life (WAL) of the index. One way to do this is to go to BofA ML's index website. Once you (created an account and) logged in, ...


2

The spot yield curve is not a chart of a single treasury bond yield - e.g., 2year of 10 year. The spot yield curve is a graph of zero-coupon bond yields plotted against time. For example, to obtain today's spot yield curve, setting time on the x-axis and yield on the y-axis, you would plot all existing zero-coupon treasury bond yields against time. You ...


2

Yes, this trading algorithm is called market making or more generally providing liquidity. In principle, the apparently free money is compensation for helping the markets to be liquid. The more people do this, the tighter the spread will be and the greater liquidity will be available on each side. In practice, the costs and risks associated with doing this ...


1

Without using depth data, the best approximate would be a function of volatility and liquidity. The weights would depend on your size. Without going this far, the simplest method would be to wait for the price to trade through your price above x percent. This assumes your position sizes are adjusted for liquidity for the instrument beforehand.


1

As you rightly observe, you really need access to order depth data to avoid a variety of biases related to spread/liquidity. It would be strongly recommended to try and get that data as soon as possible, as it is exceptionally hard to accurately backtest any trading strategy without it. If/when you have order depth data you need to use the most pessimistic ...


1

I think you're missing the fact that the trader bought the $40 call but wrote the $45 call -- i.e. someone else bought the $45 call from him. That's why you have to subtract 600-100. At expiration, the following happens: he exercises the $40 call (buys 100 sh @ $40) and (presumably) sells 100 sh @ $46 = $4600 - $4000 = $600 profit his counterparty ...


1

Late to the party, but it's just improving your cost basis in a defined risk trade even further. If you want to put up less risk capital but want to test the waters, this can be one way to do it. Another could be buying cheap OTM butterflies or financing a further otm option with the basis reduction from the debit spread if you want to gamble a bit further ...


1

Well, futures don't have a "strike" like an option - the price represents how much you're obligated to buy/sell the index for at a specified date in the future. You are correct that there's no cost to enter a contract (though there may be broker fees and margin payments). Any difference between the contract price and the price of the index at settlement is ...


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