Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
Search the full text of this book:


Page 147

indicator of the general level of activity (liquidity) of a certain stock. Also one may look at the volume of a stock in relation to the outstanding shares to gauge liquidity. An average of one million shares per day for a stock may have a different meaning if there are 100,000 outstanding shares or if there are 10 million outstanding shares of that stock.

How about the relation between the volume and the stock price? Is there a difference in liquidity between one million shares traded on a $1 stock versus a $100 stock? Let’s not quibble here. Liquidity is certainly an arbitrary concept when it comes to stocks. Normally I would consider 300,000 or more shares per day as high volume, 100,000 to 300,000 average volume, and less than 100,000 shares per day as low volume. You may consider other values as volume gauges.

Let’s look at our Ford stock example. Suppose the going price for Ford shares is $50 and you decide to jump in and buy 20 shares. You would place an order with your broker to buy the 20 shares at $50 per share (limit order). Your order enters a bid pool with the rest of the orders and the hunt is on to find a match with the selling pool to execute your order. If the current ask price for Ford is 50 1/4, your order will not execute. Instead you order will continue to be in pool until the ask price drops down to your bid level. Meaning that a seller gets tired of waiting and lowers his price. This may or may not happen. It all depends on supply and demand. The ask price may never come down to your bid level; it may actually go higher, which means that your order will never get executed. Or it may start to move lower, picking up your order on its way down and come to rest at a much lower point than your original bid (at which point you curse yourself for bidding so high, but how could you know?).


<< Prev Page   |:::::::::::::::::::::::::|   Next Page >>
Table of Contents
Copyright and Disclaimer
  • If you have enjoyed reading this page, please consider purchasing the book or making a donation.
  • Book Chapters
    Table of Contents Copyright and Disclaimer Foreword Money
    Bonds Futures Stocks Options
    Mutual Funds Retirement Final Words Appendix A

    Read Financial Markets  |   Home  |   Blog  |   Web Tools  |   News  |   Articles  |   FAQ  |   About  |   Contact

    © 2001-2010 Robert Vahid Hashemian
    Support the effort
    Liked this page?
    Please consider creating a link to it
    from your Web site.

    hashemian.com
    هاشمیان.com

     Home

     Blog

     Web Tools Add Free Web Tools custom Google Toolbar button (Requires Toolbar >V4)
    Usage

     News

     Articles

     FAQ

     About

     Contact

     Financial Markets Book
    Read Complete Book



    BOOK
    The relationship between bid-ask spreads and holding periods: The case of Chinese A and B shares [An article from: Global Finance Journal]
    P. Wei
    $10.95


    BOOK
    Payout policy, taxes, and the relation between returns and the bid-ask spread [An article from: Journal of Banking and Finance]
    G. Jacoby
    $8.95

    BOOK
    Bid-ask bounce and the measurement of price behavior around block trades on the Australian Stock Exchange [An article from: Pacific-Basin Finance Journal]
    A. Lepone
    $10.95


    BOOK
    Were bid-ask spreads in the FX market excessive during the Asian crisis? [An article from: International Review of Financial Analysis]
    A. Sy
    $10.95


    BOOK
    Microstructure effects, bid-ask spreads and volatility in the spot foreign exchange market pre and post-EMU [An article from: Global Finance Journal]
    S. Thomas
    $10.95

    |bid-ask|

    more…




    TAX 2009
    Amazon Tax Central

    aStore - Hashemian.com on Amazon

    Visits: Powered by hashemian.com

     

     

     

     

     

    Search Hashemian.com





    LOSE WEIGHT NOW ASK ME HOW Pinback Slogan Lapel Pin
    $0.99
    Ends: Fri Mar 19, 2010 03:12:47 EST


    Soviet rank badges! 2badges included! bid now!photo!!!!
    $24.99
    Ends: Fri Mar 19, 2010 03:23:21 EST


    FLOWER DRUM SONG ~ MUSICIAL 2 LASER DISC, NEW LQQK BID
    $4.99
    Ends: Fri Mar 19, 2010 03:25:06 EST


    TWISTER DARK SIDE OF NATURE 2 LASER DISC, NEW LQQK BID
    $4.99
    Ends: Fri Mar 19, 2010 03:29:09 EST


    4 AMC Silver Experience No Exp. valid 7 days a week BID
    $0.99
    Ends: Fri Mar 19, 2010 03:29:41 EST

    more…