
SEC Rethinks the Penny Tick in Stock Trading - JumpCrisscross
http://www.cnbc.com/id/100433013
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speeder
I think that the only effect of reducing fractions is to make prices more
imprecise, specially of smaller companies.

For example in Brazil, the game console manufacturer TecToy, has its stock
floating between 2 and 4 cents.

Seriously, 2 and 4 cents is a HUUUUUGE range, and neither is accurate to
measure the company value.

But if you could value it in 0.0038215 probably it would be much better and
with smoother changes.

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lunchladydoris
Who would think that going from a minimum tick of 3.125 cents to 1 cent could
be so harmful.

Colour me naive, because I'm not convinced by this narrative.

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strongvigilance
It's a story which gets pushed pretty hard by the more old-fashioned market
makers, who are now getting out-competed by HFT/automated trading. Higher
minimum tick is good for them as they earn money from the bid/ask spread,
which necessarily has to be wider.

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amalag
SEC rethinks decimals but has nothing to say on high frequency trading?
Somehow increasing the spread is being considered but allowing trades to stay
at the markets for 1 second is not? What is going on? Europe is enforcing 1/2
second trades: [http://www.tradersmagazine.com/news/hft-high-frequency-
tradi...](http://www.tradersmagazine.com/news/hft-high-frequency-
trading-110345-1.html)

Do we really need market makers to have trades for less than 1 second anyway?
That really contributes to liquidity in the markets?

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JumpCrisscross
Increasing the tick size hurts high frequency trading by making it costlier to
rapidly enter and exit positions.

~~~
strongvigilance
Not really - a lot of HFT earns money from liquidity provision, where a higher
tick value would increase profitability, since they're entering and exiting
trades passively attempting to earn the bid/ask spread.

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zandorg
So if I buy 1000 shares, I pay $10 in spread fees (1 cent per share)?

~~~
strongvigilance
Generally speaking, yes - the spread is the cost of buying immediately.

There is no single price for a stock at any given time. There's a bid price,
which is made up of unfilled buy orders, and an ask price, which is made up of
unfilled sell orders. The difference between the two prices is the spread.

Imagine a stock is bid at $1.00, and offered at $1.02. If you want to buy it,
you can have it for $1.02 immediately, since the ask price represents sell
orders. If you want to avoid paying the spread, you could place a limit order
at $1.00, hoping that someone less patient will sell to you. Alternatively,
you could place a buy order at $1.01, which would make this the new market bid
price. Again, your order will only be filled if someone else wishes to sell
the same price.

