Who is to blame

[FTSE Beater]

Hi all.

I was thinking about witting to Working Lunch with regards the large spreads and commissions we pay on UK shares.
I've recently been trading the US stocks and the commissions and spreads are non existent. A 0.01% change is usually all it takes to be in profit when trading US shares.

What I want to know is - Who is to blame for the large spreads?

Any comments and opinions would be most appreciated because if I can get a good enough case together, then I will contact Working Lunch to see if they know of any reason.

Thanks

 

[Trader333]

Large Spreads

In my view large spreads are the inevitable result of low competition or poor liquidity.

If you are talking about Spread Betting companies then they have no US based competition and if they did their spread would have to come down or they would lose the business.

The second factor is liquidity, the more people who are trading the bigger the chance that a bid and ask will more than likely match and particularly so on the electronic exchanges. There may be other factors and I am sure others will let us know what they are.

All The Best

 

[Naz]

On the Nasdaq ECN's allow traders to nip in and close spreads.When we traded fractions the spread was about 6c.As soon as we changed to decimals ECN players were free to shave spreads,which they duly did.With the advent of supermontage spreads on less liquid stocks are going to be reduced as well.

The ability to trade on ecn's means that when trading premarket,their exists less liquidity and hence larger spreads.The astute level 2 player can buy on the bid and sell on the ask therefore capturing a spread and not paying it.

Getting to a level where it is so trader friendly to trade the Nasdaq has taken many years.

Harvey Houtkin was one of the first people to pierce the market makers armour and so successful were these band of pioneer traders that the Nasdaq market makers called them SOES bandits.

The SEC clamped down on years of restrictive,unfair trading practices and threw the doors open to independent traders when they introduced ecn's in Jan 97.

Its thanks to people like Harvey Houtkin and his cage rattling exploits that we have a true traders market that exists today.

 

[FTSE Beater]

Hi Naz- Thanks for your post. I’ll do some digging on Harvey Houtkin

Getting to a level where it is so trader friendly to trade the Nasdaq has taken many years.

So we could be in for a long wait


Hi Trader333

In my view large spreads are the inevitable result of low competition or poor liquidity.

I agree – but the problem can only get worse from here, as traders look to the US for profits.
Having said that, the LSE handles more volume than the US Markets. I can’t remember who told me that but I’m sure it’s true. The difference is that the UK markets are traded for 8.5 hours as apposed to 6.5 for the US markets.

What does annoy me is that the US brokers charge high commissions for UK Share trading. Which is I suppose understandable as they have to charge more commissions to cover their overheads

 

[Helenqu]

Hi Mark,

I sort of agree with all the poll points. I think it's a mixture of all of them.

LSE needs badly to be taken over and brought into the 21st Century.
Stamp duty is a major disincentive to trading in UK stocks and it's crazy that GB still thinks it's a "good idea".

I think changes will happen, there are good and competitive brokers like iDealing about now who have helped bring prices down. But they need structual support too as well as competition.

 

[Terry]

Other, - because I don't know, don't care, and simply wanted to see the results of this poll (which I could not do without voting) I only trade US markets.

 

[Racer]

Other: the MMs, but now there is SETSmm as well as SETS, it has improved and if you trade CFDs on the book you can take advantage of wide spreads

 

[Scripophilist]

Stamp duty on investment purchases is a nonsense. A lot of my money is in the US due to the items mentioned above. It's really disapointing being a UK resident and seeing such apathy to the markets. No excuses in my book. I voted with my feet many years ago and have a lot of money in the US. That's how the US can finance its trade deficit I guess!! The UK will never have that option. I could go on but I think people understand the arguments.