We hope that before answering, you took a good look at the time-scale and the number
of quote changes occurring each second. This chart shows
2,500 quotes over 14 seconds,
about 180 per second, which is tame (much lower) compared to more active stocks which often
have thousands of quote changes per second. And like the example above, these
high quote rates often occur without any trade executions.
The answer to both questions, is that the Bid/Ask spread depends greatly on where you live.
Are you in California? Too bad for you, as the speed of light ensures that most of
these quotes will be long gone before you can get to them. In Hawaii? Be thankful you live in paradise. Chicago? Much better chance than Hollywood has, but still,
good luck. New York? Now you're talking baby! You will, unfortunately, have the most
frustrating experience. Even though the speed of light costs you only a millisecond
or two, those quotes are merely an illusion. Once your order actually gets to the exchange,
you will be lucky if more than a few hundred shares actually execute at the price
that looks to be fair and firm. You see, even working market orders have been known
to
miss "quote adjustments".
For those that traded in the pits, think of that
guy who caused a few out-trades by pretending he didn't see or remember trading
with you.
That guy? He's the new HFT guy.
For those that traded in the pits, think of that guy who caused a few
out-trades by pretending he didn't see or remember trading with you. Or that he 'canceled'
his intention to trade with you, and you weren't fast enough to notice. That
guy? He's the new HFT guy. Only now, he can cancel a bid at the speed of light.
And he's also anonymous, which means you won't be able to recognize him next time.
And
everyone, except you, seems OK with this. Too bad for you if your connection is another
meter away, you need to pony up, or quit your crying.
This rapid cancellation of quotes has never been seen before here on planet Earth.
But, hey, get your head out of the sand you Luddite! This is '11 for crying out loud.
Get with the times! Everyone else is doing it.
Think this is hyperbole? Tongue-in-cheek? Think again. We dare you to see what
kind of fills you can actually get in an environment similar to the one with this
stock. Not a 100 shares, but the size that appears in the best ask size: in this example,
it's 2,200 shares.
Go ahead. Send us an image of your fill from your broker and
tell us the symbol, date and time. We'll take a look.
Now, to be clear, we are not advocating "going back to the caves". We are just calling
for fairness. Posting a quote that only a select circle of traders can realistically
execute against should never have been allowed to creep into our markets in the first
place. One way to solve this is having an accurate and reliable timestamp and the
knowledge that an order can't just disappear faster than the speed of light. People
in California are already subject to a minimum quote life of about 50 ms -- simply
because the speed of light prevents them from canceling their quote for that amount
of time. So why should someone in New York be allowed to knowingly cancel a quote
that was just sent, and not yet seen, by those outside of the inner circle? Pretty
stupid (some would say dishonest) if you asked us. Especially when you consider that
NBBO stands for National Best Bid or Offer.
