Why the spread is more than Target spread for an instrument in CFD trading?
Hello, @raj80010. We have what is called a floating spread - meaning that it reacts to the current market conditions such as volatility and liquidity and might be increased or decreased, depending on their current state. The target spread is what the spread would be under “normal” market conditions.
this is annoying because it doesnot allow the trader to leverage the market volatility @PeterA
I’m not sure how spread is calculated so I did an experiment with City of London Inv. Between 15:30 and 15:39 today. I have an ISA account.
The spread was 12p between Sell 407p and Buy 419p, which seemed excessive to me but maybe it’s because this stock has low volume? I’m guessing this is the Target Spread.
As I owned stock with an average price of 405p, I initially put in a limit order to sell at 418p, and immediately noticed that the Buy price dropped to the same amount. Because I thought this was a fluke, I changed my limit order to 417p, and again, the Buy price dropped to match. Finally, I changed my limit order to 412p, and yet again the Buy price dropped to match—the spread was now reduced to 5p. I’m guessing that this behaviour is the floating spread? After a few minutes, my limit order was carried out, but then the price reverted back to 419p, and the spread reverted back to 12p, i.e. the target spread.
It looked to me, for a few minutes, that on a low volume stock not only could I could manipulate the buy price down, but I could reduce the spread as well. Is this supposed to happen? i.e. normal behaviour?
Food for thought – if you owe a low volume stock with a high spread and you wanted to buy more, could you not in theory do what I did above, reduce the spread and then buy large amounts?
Anyhow, I just thought it was curious.
Did you ever learn more about this behaviour?
No, they never got back to me. I’ve seen it happen a few more times as well but haven’t tried it lately. Just one of those curiosities I guess!
Spreads are too curious at moment I’m in profit although my average price is higher than the sell price but the buy price is 20c about my average cost
The spreads today were a mess. I know the markets took a hit but I had a similar problem as above with nearly all of them.