Bid/Offer spread compared to other platforms

Hi

why does the trading 212 have greater spreads when i purchase shares. For example i tried to purchase TRY Property on HL and was getting a buy price of 3.37 per share and with Trading 212 i only secured 3.41 per share. Is this intentional?

Interesting. T212 quotes 341.30 for 100 shares. Interactive Investor quotes 337.22.

T212 is displaying buy price of 339.6p but 100 shares quotes as ~341.30 (ex stamp duty) not 339.60. Odd. See screenshot below. Will be interested to hear explanation. Is the T212 displayed price out of date?

Itā€™s a pretty complex issue, but the short answer is that the indicative price is different to the execution price.

Our price feed comes from just one source, which looks like itā€™s different to HL etc. Itā€™s purely indicative. When you place an order, it polls different execution venues - e.g exchanges, liquidity pools, MTFs and routes it to whichever offers the best price. For common, liquid stocks there is not much of a difference between the indicative price and the execution price. Once they are less liquid, this is more apparent.

We think this gives the best result for a client as when money is at stake, we aim to get you the best available deal. Other providers will show you a price offered by a single market maker to whom they route the order.

Thanks. But this doesnā€™t really explain to me why Interactive Investor can offer a firm quote (to be accepted within 10 seconds) that is so much less than the buy price being displayed by T212 at the same instant. Maybe you are saying that if I had actually made a market order on T212 I would most likely to have been pleased to see the fill price would be less than that shown in the app? But that begs the question why the price displayed in app is not a true reflection of the price likely to be achieved.

Also, why does app show price 339.6, but 100 shares has estimated price 341.30? I would expect them to be the same figure.

Iā€™m not sure exactly how Interactive Investor work, but if they offer a firm quote good for 10 seconds, this is most likely an RSP (retail service provider) https://aim-watch.com/project/overview-retail-service-providers/ . This is a price from a market-maker in the stock, rather than a price from the underlying exchange. It is likely as good or better than the reference price.

If you submit a market or limit order through T212, your order is sent to multiple execution venues to achieve the best result. This might well be better than the indicative price.

So why doesnā€™t the indicative price match the achievable price? It derives from one source. This source may not be the most liquid for the particular stock you are looking at. It may be that there is more lquidity and hence a tighter spread on an MTF rather than the incumbent exchange.

Why is the estimated price worse than the app (ā€˜touchā€™) price? Probably because there are a limited number of shares for sale at 339.6. To get 100 shares, you might have to buy 20@339.6, 20@340 and the final 60 at 342.3. This would give you an average of 341.3. Chances are thatif liquidity is reasonable, you could leave a limit order at the touch price 339.6 and get the full size, but the shares are not instantly available.

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@Richard.W The calculated cost includes stamp duty, thatā€™s why youā€™re noticing a discrepancy.

As for pricing, Interactive Investor probably rely on on the RSP. We have direct market access to the LSE order book.

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Holy thread resurrection batman!

The issue that frustrates me when day trading on the 212 system is the spread is clearly biased towards the broker. I can make a trade with a stock that shows a small spread, and half way through the day show a 10% gain, but the spread has grown and works against me, with a sell price the same as when the market opened, which drops further as the stock climbs. I know thereā€™s a volatility factor but itā€™s clear it reacts against traders, who expect to be able to sell out at at a peak with the majority of their gains, instead of having it countered by biased spreads.

No sir, I do not approve!

There was this more recent thread talking about this issue, maybe take a gander?

If after this you believe you are being swindled, the next step would be to request proof of execution from T212 (for orders that went through) and compare them to the marketā€™s book. If any discrepancy if found, this may be reported to the regulation agencies.

If you do not place a closing order, because of the displayed spread, keep in mind, as mentioned in this topic already, that all displayed prices are informative only, and may differ quite a bit from the prices you would get in your order.

Placing a limit order would guarantee you execution at your chosen price.

Hope this helps!

Oh also!

If you are referring to CFDs, indeed T212 does have a control on the spread there.

But the heightened spread that will arise with volatility is not an effort to sham their customers, but instead a necessary step regarding their risk-management policy.

As a CFD provider, they are your counterparty, and while they keep a market neutral position (they are not betting against you), they may face high risks when underlying securities move rapidly, and if liquidity is low. Risk being them not being able to replicate your position with the real market, and hence being heavily liable towards you without any of their cover; or the opposite; you becoming far more so liable to them than anticipated.

Now imagine that for every one of your bet, your broker is the counterparty to thousands more bets, from thousands more customers, all at once.
Nobody would enjoy seeing their broker fail, and not being able to honor their counterparty agreement towards their customers.

This is why in certain situations, on CFDs, spreads are very high, as it is standard procedure to limit risk exposure when some underlying security face liquidity risk or execution risk.

Sure I understand your point and how the spread is supposed to counter volatility. My point is that ā€˜adjustmentā€™ tends to work against the trader. Example:

You buy a stock at Ā£1.00, the spread has a 98p sell, so thatā€™s pretty decent and assuming the stock goes up just 2%, you would at least make your money back.

The stock trades upwards and downwards across the sessions and by mid day. itā€™s hit Ā£1.10, a 10% gain! You genius! But looking at the spread, itā€™s offering a Ā£1.00 sell. Ok so maybe thereā€™s some volatility itā€™s accounting for, so you just have to wait for it to catch up. The stock bounces around Ā£1.10 for the next hour as you wait nervously. It goes top Ā£1.15, and the spread offers a Ā£1.01 sell; a penny?! The stock drops back to Ā£1.10, the sell drops to 96p, a 5p drop because of ā€˜volatilityā€™.

What happens, and what I see day to day, is when stocks rally in a traders favour, the delay in the sell price to rise, is far longer than the time it takes to drop. Just think about the infrastructure around high speed broadband cables built into exchange buildings, because every micro-second matters when you are trading. 212 with their 1 minute charts makes it hard enough, without the time delay working against us and the sell price falling below the opening price is indicative of how much the time lag works against us.

I donā€™t trade CFDs because although the time is at shorter intervals, the spread works the same way and itā€™s frustrating to see yourself at a peak, unable to sell because the spread doesnā€™t update until the stock falls again. Itā€™s a rigged way of trading and no surprise 76% of CFD traders lose money. Itā€™s worse than a black/jack table. Itā€™s like betting but the house doesnā€™t let you cash out until you lose. No thanks.

Alright, then just 2 small points to add here;

If you donā€™t trade CFDs, then the spread is the market spread, T212 has no intervention on it.

As mentioned earlier, there may be disparity between displayed price and market prices; and a limit order will help you out.

Secondly, there may be some survivorship bias in your analysis. You refer to the trades you opened with a tight spread, notice a profit, look at selling, but the spread has now widened, lowering your realisable profits. Now, you use this observation to claim unfairness.

Let me ask you this then: have you also duly noted all the trades youā€™ve opened on a tight spread, but are now at a loss, even though the widened spread would have lowered that loss?

The widening of the spread doesnā€™t come from your opening of a position; nor does it come from the brokersā€™ initiative, or any other intermediaries; it comes from the availability of buyers and sellers at given prices; using only half of the observations to lead to a conclusion isnā€™t quite representative of reality.

Yes I understand the system as you describe it.

To make the point clear, letā€™s agree some basics:

The stock price is effected by the volume of shares moved
The spread is effected by volatility and stock price

A stock moving up, suggests the volume is overall in the favour of the stock, so it is more likely to go up and favour the trader, and visa versa.

A stock coming down, places a risk on the broker if they agree to sell at a lower price than the market at time of closure. Offering a lower sell price than might be obtainable protects the broker and passes the loss on to the trader.

In actual trading, a stock moving up has a lower effect on the spread than a stock moving down. If the sell priced is set up to move down, for example, 5% more than it would move up, then each trade compounds the difference, to a point that the sell price becomes further away from the market price, even lower than opening.

Iā€™m not necessarily blaming 212, but expressing my frustration over a trading system which is setup against the trader. It creates another challenge to overcome, which essentially means traders are having to cash out earlier to avoid a drop in the sell price, even if the stock price continues to rally. As much as there is some satisfaction of knowing I cashed out as the sell price continues to fall, it is frustration to cash out on a stock that continues to rally upwards and itā€™s the widening spread that is forcing me to lose out on hundreds that I effectively earned from making a good call.

A fair system would be if the spread maintained the same margin, which I think would require 212 of have a very well linked stated price to action price.

If weā€™re agreeing 76% of traders lose money on CFD, perhaps itā€™s fair to say systems like this tilt the tables against them?

No. The spread is commonly affected by how fast the share price might move, but equally by the volume traded. Most penny stocks tend to have an atrocious spread primarily due to low liquidity.

Just no. This is absolutely illegal, and not at all how markets and trades work.

This is unfounded. You may witness some samples suggesting this from a narrow perspective, but the data does not support that. The price moving up or down has pretty much no impact on the spread; the speed at which it does might, if a large chunk of the order book gets consumed. But then again, it will depend heavily on the order book at the time of the experiment, and there will not be any conclusive results to qualify or disqualify this statement, the correlation is pretty much nil.

That money was never there to begin with, if there is no order in the order book to realize the price targeted. Wishful thinking at best.

Talking about two unrelated things, share dealing and CFDs, those are widely different products with different mechanics at play.
But then again, a CFD Broker is market neutral, and does not bet against its clientele. People lose money as they donā€™t understand the underlying fees and fail to have any sort of proper money management when playing with high leverage. Actually, even past retail, anybody playing with more than 2x leverage, retail or professional, tend to lose far more than they make.

Well, welcome to the joy of money-making. The frustration of every losing lottery ticket is so overwhelming!
Remember, every time you sold a security at a profit, and say its price then pulls downward, somebody else was the buyer of your transaction. Surely he must hate the game too, he just bought a dud!

Security trading in aggregate is a 0 sum game (before fees)

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What did you think I meant by ā€œThe spread is effected by volatility and stock priceā€? Volume drives stock price.

I was using a metaphor, not accusing 212 of applying this. They could also lock people into trades and offer trading tokens, or free coffee cups, but they donā€™t.

I not going to argue conjecture as Iā€™ve pretty much made my point.

This I like. Itā€™s the psychology turmoil of trading and you either have it or not. Iā€™ve lost plenty of times, but the skill is evaluating your actions and learning from them, not throwing your toys out the pram and giving up. I talk tool of trading apps but thereā€™s plenty of psychology involved, building up your mental defences to remain in control of your emotions and trade methodically. I just think the amount of work, research that goes into a trade deserves every penny of returns that the stock creates and I loath the idea of an impractical system taking some of that away. Saying that, itā€™s more annoying to see people trade on tweet feeds, so if I can make some money form of their short-sighted actions, Iā€™m happy to do it.

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Alright, I might have been harsh there. Let me clarify then; the spread is pretty much fully driven by how the order book gets consumed. Raw volume or price action has little effect, but rather how disproportionate the volume and the price action is to the order book. A low volume, in a low liquidity market, with an even thinner order book will create very high spread (think penny stocks), while megacap stocks, even in times of high volatility and huge movement following major world events will tend to keep a very low spread, because of their massive order book.

Then Iā€™ve missed it. Could you please elaborate? I may have taken your hypothetical example at face value, but for the past few posts you were trying to suggest the idea that (your) brokers would act deceptively in their share dealing services, which for any regulated broker around here is just not the case.

That is a good place to be in :+1:

Iā€™ve just been trying to point out that the markets tend to have a rather complex structure, and there is more at play than just the security you focus on.
Imagine yourself in the shoes of a very big trader, trying to place an order in the $millions. Not only you run high execution and pricing risks, slippage, partially filled order, etcā€¦ you also run legal risks if your trade alone moves the market too much.
At the end of the day, your trade is going to be mirrored by an other investor; and the dynamics of buyers and sellers will determine what you can capitalize on, and what you cannot.

Although to be fair, it is somewhat surprising that in our day and age, having reliable price information is something of a unicorn. But even this comes from a certain reality; open markets are very wide systems from a lots of interconnected intermediaries, with a lot of different trading venues, and most of it was done on paper until very recently.
If the whole system was being designed today, you would encounter less issues, it is certain.
But it simply isnā€™t the case, and as much as you research your securities for trading, so should you understand the reality of executing trades.

Uhhg :roll_eyes::triumph:

As you should be! Empty these motherfā€¦ :joy:

Thatā€™s mostly my point, all the research in the world is worth less if in-efficient systems, ie delays, cut into your positions. For me itā€™s the delay in the spread when a stock rises that is doing just that, maybe itā€™s a delay in the data, or a balancing out of trades, but whatever the reason itā€™s a factor I have to account for, essentially cutting my position earlier than I want to take the majority of gains off the table whilst I have them. Pig get slaughtered after all, so Iā€™d prefer to adapt and survive!

I wonder if the charging platforms are any faster in this regard? Such as trading down to seconds instead of 1 minute intervals (not counting CFDs). It comes down to where they source their data feeds doesnā€™t it? Even the location and speed of their servers must be a factor.

As far as I know, in share dealing you will not get any improvement at other brokers; the only case I would see this happening is if your trade from a major broker get routed to a major market maker, but even then, the ā€œbetter priceā€ would be extremely marginal, and only for very high volume stocks where this wasnā€™t an issue in the first place. Market Maker are only confortable being your counterparty when they have reasonable confidence that they will not face liquidity or execution issue themselves.

In the professional side of things, you may achieve better performance through derivative dealings; the experience would be quite relatable to CFD dealing, where you would pony-up high subscription cost to a broker-partner, and effectively deal in swaps; they would agree to such contract if your trading style match they risk-management policy, and the high fees they charge you would allow them some breathing room in case they could not fully replicate your position. They would also require to post collaterals depending on the size and frequency of your trades.
I think one example of this would be Renaissance Technology, in which case they pretty much have direct market access (which once more, would not solve your issue here if the order book doesnā€™t have a tight spread) through their broker, but they do not directly own their securities; instead they buy options on their custom portfolio.

For the individual investor, your best hope would be CFDs, but the higher overall cost would probably not be worth your while for the very few instances in which youā€™d be able to get a better execution; while I believe it may be possible once in a while to get a better pricing on CFDs, this would be the very rare exception. CFDs spread will pretty always bake in the underlying spread, + brokerage fee, + widened spread for heightened counterparty risk in volatile markets; in your use case, pretty much guaranteed to get a worse price.

So, what to do? I guess acknowledge that this is how trading venues operate, and that must be taken into account when executing your trading strategy.
This is analog to say, a quantitative trading algorithm; designed to execute trades automatically without human oversight, part of the strategy has to account for transaction fees, slippage, partial fill, and the likes. And so do you!

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I day trade, plus when I get time, I run my YouTube Channel

I tried CFDs, and although I made money, the level of attention I had to apply made me very irritable. Itā€™s not healthy for the obsessive :face_with_monocle:

Now I tend to trade the market through my investing accounts. Itā€™s not as exciting, but itā€™s more stable and I think makes the most of the research and planning I do, as itā€™s not just about trading volatility and buys me some breathing room. Although I lost around Ā£200 driving to McDonaldā€™s yesterday :face_with_hand_over_mouth:

Trading like a boss:

I picked one hell of a day to have leveraged short positions on ARKK, COIN, AAPL, TSLA and NVDAā€¦ :cowboy_hat_face:

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