Bid/Ask Question

[Steven1986]

Hi Folks,

 

I'm fairly new to trading (5-6 months in) and I've managed to do quite well so far but I'm still learning everyday as I go, so i'll get right down to it. 

 

If you buy into any stock because you've done your research and think it's got great potential, at the time you buy in the spread you pay sits about 5-8 points. So you go long and then over the next week the stock has exploded to the upside jumping up 300 points within that week and still going strong, my main question here is that I want to add to my position to increase the profits as I think the the stock still has more to go but the spread is now sitting at a 30 point difference! 

 

So what would you guys recommend in this situation, If I even go £1 a point I'm instantly down £30 from a crazy 30 point spread....

 

Thanks,

 

Steve

[JamesIG]

Hi  thanks for your question. I can't advise on whether or not you should add to your position, but I just wanted to give you a run down of how we price out markets on shares. We offer a number of different trading options so there are two sub sections below.

 

Spread Betting on shares

We pull the exact underlying market price for that stock and wrap a small spread around it (for example on FTSE 100 stock this is 0.1%). This is done in real time and therefore fluctuates against the spread in the underlying market. A wide spread on a stock which you can spread bet on with IG is therefore due to a wide spread in the underlying stocks share price.

 

CFD, Share Dealing (ISA, SIPP, and regular Stockbroking) on shares.

We take the underlying market price and this is the exact price you deal on. The difference between the buy and sell price maybe wide, however this is due to the underlying market spread. IG then charge a separate commission which is booked separately against your ledger. 

 

Primary factors for a stock price spread.

• Liquidity: the volume or amount of stocks which are available to trade on a daily basis, as well as how often that stock trades hands. This is a basic of the free efficient market - the more there is of something and the more it's traded, the more competitive the market and the better price you'll receive. 
• Volatility: this is best summed up by Investopedia - "Volatility usually increases during periods of rapid market decline or advancement. At these times, the bid-ask spread is much wider because market makers want to take advantage of - and profit from - the change. When securities are increasing in value, investors are willing to pay more, giving market makers the opportunity to charge higher premiums. When volatility is low and uncertainty and risk are at a minimum, the bid-ask spread is narrow."

 

So the main thing you should think about is if you think the spread / cost at that time is worth it for any potential future upside (and of course downside risk as well)... 

 

Which stocks are on your radar  ? 

 

[Steven1986]

Hi James,

 

Thanks for your response, always appreciated!

 

For this stock I decided to wait and patience paid off as the spread dropped massively for a short period and I got in cheap again for my second position, I guess I've answered my own question there with applying some patience and waiting for the right moment to get in.

 

The stock I am long on is FDEV which is a games company that's doing extremely well at the moment.

 

Another one I was thinking about going long on that appears to be doing very well recently is Microgen which is a software company.

 

Regards,

Steven

 

[JamesIG]

I must admit this isn't a sector I follow so much, but it looks like an interesting trade. Investors Chronicle seem to have run a 'Tip Idea' on it as well, and I believe they have their results very soon? 

 

Full Year results for the year ending 31st May 2017, according to Bloomberg, seem to be out on the 7th of September. What are your thoughts on this trade over the statement release?  Will you change your risk exposure by adding a guaranteed stop for example, or averaging out / in ? 

 

It would be nice to hear from any other community members who are trading this stock. I have included the sentiments below, true at time of posting. 

 

[Steven1986]

 

Hi James,

 

My apologies for such a late reply, didn't see your reply come through!

 

Do you sub to investor chronicle? does it cost you? I tend not to sub or read any tips as I run through sectors/charts myself, they say hard work pays off so will let you know how it's going 1 year from now, hopefully great!

 

I stumbled through this by going through UK stocks sector by sector, I know the gaming world well and I know with the Technology field booming that smaller companies like this will do well, this one in particular was under priced because it had a huge title released (Elite Dangerous) which was well received, was only a matter of time before another big title came along and the price rockets, and it did. 

 

I'm no longer in this trade but I will be keeping an eye on this one as the share price is expected to hit £16+ and with the earnings release I think they've smashed profits because they sold over 1 million units of another game they released not long ago. 

 

Do you know any really good stock screening sites such as Finviz? Finviz has all the US stocks in great detail but not so much the UK stocks, looking for one that's just as good as this one so I can zone in on specifics.

 

Cheers,

Steve

[JamesIG]

 I can't remember what my subscription was, but I think it was one of those 'beginning of year' promotions which are always worth looking out for. 

 

It's good to come up with your own strategy, like you said, and picking a sector you are familiar with seems like a good start. IG has a couple of screeners which you may find useful. I have included the links below 

 

For individual stocks: https://www.ig.com/uk/ig-market-screener

For individual ETF's: http://etfscreener.ig.com