quote/order driven markets????

[tonyjai]

i've been told by a friend that if i go to different brokers.... buy shares for the same amount, at the same time lets say marks and spencers" i will be quoted differently by the brokers. he explained by saying it simular to ebay......you ask many brokers to buy a mp3 player for you but they may get it at different prices.

but, after reading a book called capital markets, it mentioned that there are two types of markets.

1. quote driven market
2. order driven market

is the orden driven market level two? is the above example of the m&s shares in the quote driven market?

lastly, are all shared in the uk in the orden driven market (level two)? if not, how can i check if that particular share is?

 

[tonyjai]

nobody?

 

[Racer]

Level 2 .. you can see order book for SETS and also the market makers and orders for SETSmm. SEAQ you can see the different MMs and their prices.

Broker placed order will be executed using one of four market systems –SEAQ, SETS, SEATS Plus or SEAQ International.
SETS.. companies like MKS, BP, TSCO, SETSmm, smaller companies like THUS, GMG, VMOB
SEAQ, all other smaller companies, sometimes only 2 market makers or say 6 or so
SEATS plus, one market maker

Lots of information on :
http://www.londonstockexchange.com

 

[Racer]

if not, how can i check if that particular share is?

You can check shares on the LSE web site (there is a list of shares traded on SETSmm for example). If you have Level 2 you can see for yourself

 

[tonyjai]

many thanks

 

[tonyjai]

i understand why a small market needs market makers (to ensure liquidity) but i read somewhere that market markets offer both buy and sell prices for a share. but, how can a market maker profit if there were only sellers and no buyers of that share? so, individual investors do not set the price of the shares via supply and demand?

 

[Racer]

They will profit on the spread..
Small caps:
Say a share is NMS 1000 and bid is 20p ask 25p
If they haven't got a buyer/don't want the shares.. and you are over the NMS... they will quote you something like 15p to sell!

Often it is a good idea to 'try' to buy the shares.. not actually do it of course.. if they are quoting way below the ask (sometimes even very near the mid price).. that is a clue.. they want to offload and not buy!!

 

[tonyjai]

what is the NMS? over the NMS?????

another question....for the market makers to bid (sell) shares they must own the shares....what if all their shares were sold?

 

[Racer]

NMS
Normal Market Size
companies are quoted according to this..
e.g. BP NMS is 200,000 share price 563.5 - 569
PON 25,000 share price 63-64.75p
CEY 15,000 share price 14.25-14.5p
If you want to buy or sell more than this amount you will get a different quote to the bid/ask
i.e., much harder to buy and sell smaller companies in larger amounts as you will often have to accept less when you sell or pay more when you buy

 

[tonyjai]

one last question racer...lol...cheers. so for small companies individual investors do not directly set the price.....the market makers do. for bigger companiers.......using the SETS systems are set directly by individual investors because there is no need for market makers because the market is liquid

can i use betting as an example to make things make more sense........trading on system where there are market makers is similar to betting with your local bookies (because there set the price according to demand and supply from punters) and trading on the SETS system is similar to trading on a betting exchange like betfair?

 

[tonyjai]

oh....one last thing............would trading small firms not give as much value as trading on big firms that uses the SETS system?

 

[Racer]

using the SETS systems are set directly by individual investors because there is no need for market makers because the market is liquid

The MMs are still there for the large caps.. just 'we' can have a go too by using direct access and yes much more liquid.
I have had the MMs pull the plug when I wanted to sell BP shares via a broker.. they will do that in a volatile market!
Haven't used betfair so can't comment

 

[Racer]

would trading small firms not give as much value

I don't understand your question?

 

[tonyjai]

more value as in the share price not being as competative

 

[tonyjai]

you said "have had the MMs pull the plug when I wanted to sell BP shares via a broker.. they will do that in a volatile market!"

what do you mean exactly? the mm stoped offering a bid price?

 

[Racer]

what do you mean exactly? the mm stoped offering a bid price?

I tried to sell my shares.. I couldn't get a quote and would have had to phone trade.
But for big companies just keep trying and you will get a quote. Small companies it is often a clue as to whether they want to buy or sell.
That is why I like having a direct access platform for SETS/SETSmm so I can grab the trade from the other side of the book if it is what I want

 

[tonyjai]

grab the other trade from the other side as in.....see when side has more strenght and buy or sell?????is this what you mean?you seem to be an experienced trader? am i correct to say this?lol...thanks for your help

 

[Racer]

Yes you could say I am experienced.. have been following the markets for a long time now.
I say 'grab' the trade.. that is if you are trading CFDs.. you can get an instant fill if you don't wait on the order book and treat it as if you want to buy or sell like shares and accept the quote. But you may have to take a bit further on the book if there are very few there..
e.g. say you want to sell 1000 but there is only 100 on the bid.. and 900 a bit lower down... you will have to enter a price for the lower one to get a complete fill. If you want more information about L2 or CFD trading look at the thread about them