Profiting from Bid ask Spread

[pritamcnaik]

Is it possible to profit from Bid ask spread , is us markets , some traders buy at the buy at the Bid price and sell at the Ask price, to gain the bid/ask difference? how relevant is it in Indian markets , What are advantages and disadvantages? Any roadblocks?

 

[vj.dehli]

Hi Pritamcnaik,

here are some points regarding the profits that could be earned while doing a trading on bid-ask ratio....
these are some general points which you should keep in mind while going ahead on this....you should also apply some more scalping skills when working on bid-ask price ratio...as it might happen that sometimes you dont get you desired price and you might land in a higher ratio than expected,eg,if suddenly breakout happens or a scrip starts moving in a more wide ratio in a particular direction..so be watchful intially( even to this article and after settling for all the scenarios you will be best able to do that!!

I wish you all the best ........!!


The scalper generates trading profits from stocks that are not moving, make tiny (or teenie) profits from each trade by buying a stock on the bid and then turning around and selling at the ask. Provided that the stock does not move, scalpers can profit all day by making dozens (or hundreds) of trades, buying at the highest price at which they feel comfortable and selling at the lowest price that guarantees sufficient profit while still being attractive to buyers.

The scalper's role is exactly the same as that of the market maker (also known as the specialist), a dealer who, by trading stock from his or her own inventory, maintains an orderly market in any given stock. The specialist is basically a scalper on steroids, as the specialist trades many times more volume per day than the average scalper. The specialist, however, is bound by strict exchange rules while the individual trader is not. For example, on the Nasdaq all market makers are required to post at least one bid and one ask at some price level, thereby making a two-sided market for each stock that they cover.

Due to the overlap of roles, the scalper is always competing with the market maker for profits. Unfortunately, the lowly scalper is almost always at a disadvantage due to the market maker's advantages: superior execution speed, perhaps a greater knowledge of trading and the ability to "bluff" the market by placing a bid or ask that exaggerates his or her own true position.

This is not to say that scalpers' opportunity for profits have been lost. Depending on the stock traded and its liquidity, spreads may remain much higher than a penny, allowing scalpers to generate even more than a teenie. By increasing the number of shares bought and sold (trading 2,000 instead 1,000, for example), scalpers can compensate for any realized decline in spreads, but this comes at the expense of increasing their risk. As for any style of trading, finding a niche from which he or she can derive profits is the trader's utmost goal. Once that niche is found, the scalper can refine his or her technique, successfully trading for pennies just as he or she was trading for teenies.