Adding Liquidity / Removing Liquidity Explanation
By · CommentsHey Traders,
Alot of people have recently asked me for an explanation of adding/removing liquidity in the stock market as well as how orders are routed. Below is a basic description with the resulting rebates as well as additional charges above your commission rate that many don’t realize even exist:
Adding vs. Taking Liquidity vs. Outbound.
The term “Add Liquidity” refers to sending an order to an ECN at a price which is not immediately executable. The order sits on an ECN’s order book until the market moves to that price, at which point the order executes. You can think of this as a limit order.
EXAMPLE: The inside market in XYZ is $20.01 X $20.05. If you place a buy order at $20.04 or below, the order will sit on the order book until another market participant is willing to sell at that price. Alternately, you can place a sell order at $20.02 or higher and your order will sit on the order book until another market participant is willing to buy at that price. Buying on the bid and selling at the offer is referred to as adding liquidity.
The term “Remove Liquidity” refers to sending an order at a price which is immediately executable. A buy order is sent with a price equal to or higher than the current offer and a sell order is priced equal to or lower than the current bid. You can think of this as a market or marketable limit order.
EXAMPLE: Using the example from above, the inside market in XYZ is $20.01 X $20.05. If you place a buy order at $20.05 or higher you will immediately execute at the current offer. If you place a sell order at $20.01 or lower you will immediately execute on the current bid. Buying at the offer or selling on the bid is referred to as removing liquidity. (Keep in mind that some venues can have hidden orders. Executions against existing hidden orders are still considered removing liquidity).
The term “Outbound” refers to an order which is routed from its original destination to another venue.
EXAMPLE: You send an order to ARCA to buy XYZ at $20.05 while NSDQ is displaying an offer to sell at $20.04. ARCA will route your order to NSDQ for execution at the better price. This order routing is referred to as outbound.
Hope that helps! Cheers!
The Ultimate Gold Bubble
By · CommentsI know it’s been a month since I’ve last posted. Been very busy with life. Now lets get back to work!
Now if you are a seasonal trader, you would know that by Mid January, it was a good time to start shorting Gold Stocks. This process repeats every year almost. Gold has had its highs, and its about time for it to reach its lows. Normally Gold will have its down period t’ll July – August. So short the Gold Stocks if you want to see some money coming in.
I would like to share an article with you that I got from another website. It talks about the predictions of Gold from the billionaire investor George Soros.
Here is the article:
Davos 2010: George Soros warns gold is now the ‘ultimate bubble’
Gold is now “the ultimate bubble”, billionaire investor George Soros has declared, sparking fears that prices for the precious metal may soon suffer a tumble.
Mr Soros, arguably the most famous hedge fund manager in history, warned that with interest rates low around the world, policymakers were risking generating new bubbles which could cause crashes in the future. In comments delivered on the fringe of the World Economic Forum, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
Gold prices last month reached a record level of just over $1,225 per ounce, having risen around 40pc last year. Investors are piling into the metal amid fears both of potential inflation and fading faith about the stability of previously-assumed safe assets such as government debt. However, the chairman of Barrick Gold, the world’s biggest producer, Peter Munk, said he expected the metal’s upward march to continue.
Mr Soros added that by proposing imminent “exit strategies” from the unprecedented support handed out to troubled banks and consumers, governments around the world could be in danger of triggering a double-dip in the global economy. In comments which will reinforce Labour’s plan to fight the next election on promises not to start raising taxes or cutting spending too soon, he said that it was still too early to slash budget deficits.
He said: “I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”
The Conservatives have pledged to start cutting public spending almost immediately after this year’s election, but their promise was weakened earlier this week by an International Monetary Fund report warning that it may still be too early to begin this process. Mr Soros also came out in favour of Barack Obama’s plan to split up large US banks, but said that proposals to tax the banking system could also endanger the recovery.
Some Useful Advice For Traders
By · CommentsBefore the new years, I noticed that there is a trend of a ” SELL OFF “. What I suggest all traders to do is look for a target buy price. Example, so if the sell off is active and say a stock drops from $3.00 to $0.70, put a buy price in the mid $0.70. You’ll see your portfolio jump in the next 3 weeks.
Happy Holidays Everyone! I’ll see you after the New Years!
Merry Christmas!
By · CommentsI would like to wish everyone a very Merry Christmas. Hope all of your holidays are safe and fun.
Materials (USA)
By · CommentsThe materials (U.S.) sector typically does well from January 29th to May 6th. From 1990 to 2008 the materials sector has produced an average gain of 8.0% and has been positive fourteen out of twenty times.
Currently the technical pattern on the U.S. materials sector, as represented by the ETF, XLB, is positive – the sector has recently broken out of its trading range.
The U.S. materials sector is substantially different than the Canadian materials sector as the U.S. sector has very little gold and approximately 60% chemical companies.
Because of the relatively weak seasonal opportunities for the Canadian materials sector in January, investors should consider reducing their position in the Canadian materials sector over the short-term and increasing their position in the U.S. materials sector in January.
Metals and Mining
By · CommentsThe metals and mining sector typically outperforms from November 19th to May 5th. Last year this sector produced a 61% return. Recently it has been trading in a rising channel and has pulled back to mid-channel. Within the seasonal period of strength the materials sector can have a short period of strength at the end of December and then “soften” in the first week or two of January. Investors should consider adding this sector to their portfolio before its next run in January.
Platinum
By · CommentsThe period of seasonal strength for platinum is from January 1st to May 31st. The primary driver for this period of seasonal strength is the auto industry ordering platinum for catalytic converters and investors optimistically anticipating increased car sales at the beginning of the year. Last year platinum increased 29% during its seasonally strong period. Unlike gold, platinum is still well below its high set in 2008. Platinum has been increasing and has recently broken out of its trading channel, which is a positive indication.
Platinum is shaping up to be a good opportunity for the end of the year/beginning of the next year.
