Opening Bids

[ctp6360]

Can someone explain this to me? Its slightly before open and HVN's close yesterday was $3.34, but someone has a bid for 83 shares at $4.15? Another guy is trying to buy at $4 etc?

Why would someone bid such a crazy amount ofer the prevailing price? Do these orders actually get filled? It happens every day I just don't get it...

 

[bullmarket]

Hi ctp6360

Below is my reply to a similar question in another thread.

Hi Bobby, finnsk

I'll try to explain what happens before the market opens at 10am but the same process is followed during the closing auction (4:00-4:15pm) and before ANY pre-open auction.....ie...usually about 10 mins before a stock resumes after a trading halt for any reason.

The stock market goes into pre-open from 7am during which time anybody can put in whatever bids/offers they like (auction). During pre-open SEATS (Stock Exchange Automated Trading System) then goes thru a 4 stage algorithm to compute the IAP (Indicative Auction Price) based on the mkt depth whenever it changes. The IAP represents what the opening price would be at that particular time based on the current market depth if the stock opened for trading there and then.

At 10am stocks begin trading in alphabetical order. The market is fully open by about 10:08am. When the stock opens for trading, all orders with bids above the IAP and all orders with offers below the IAP are executed at the IAP. The IAP when the stock actually opens becomes the quoted opening price. During pre-open people put in bids above the IAP and offers below the IAP to ensure their orders are executed on opening.

At 4:00pm normal trading stops but again anybody can continue to put in whatever bids/offers they like until 4:15pm, just like in the morning preopen, but the orders aren't executed until 4:15pm. During the 15 mins closing auction SEATS again computes the IAP as above each time the market depth changes. At 4:15pm, for each stock all orders with bids above the IAP and all orders with offers below the IAP are executed at the IAP. In this case the IAP will be the quoted closing price.

I hope this makes sense and helps

cheers

bullmarket

 

[ctp6360]

thanks bullmarket, this does make sense to me and i've read the thread you are quoting, however, it still doesn't answer my question as to WHY someone would put in such ridiculous bids? do they really think a share will jump 20% or more at the start of trading and that they will miss out? or is there something I don't understand here?

 

[bullmarket]

no problem ctp6260

thanks bullmarket, this does make sense to me and i've read the thread you are quoting, however, it still doesn't answer my question as to WHY someone would put in such ridiculous bids? do they really think a share will jump 20% or more at the start of trading and that they will miss out? or is there something I don't understand here?

to be honest, I don't know what is behind some of the extreme bids and offers that are way above/below the IAP. Whether it is someone trying to manipulate the IAP or playing some other mind games trying to entice others to increase their bids or lower their offers I don't know.

But if you have something like Protrader you can see the actual IAP at any time during preopen and more often than not, even though there are bids way above the IAP there are also offers well below the IAP and so the IAP is usually about within +/- 1% of the previous close, everything else being equal.

Personally, if I'm looking to buy or sell at the open or close I just watch the IAP and ignore the extreme bids/offers and then just place my order a tick or so above/below the IAP as appropriate to ensure my order goes through on the open/close.

cheers

bullmarket

 

[bvbfan]

I've heard with the abolition of broker codes some brokers are using other methods such as quantity to identify themselves, I don't see why it couldn't be extended to bid price

But basically you bid high to make sure you get into the stock, you sell low to make sure you get out of a stock.

 

[GreatPig]

A related question: how is it that I sometimes see volumes traded before opening?

For example, looking at my watchlist at 9am might show BHP having traded a few 100,000 shares already while most stocks still show zero.

GP

 

[bvbfan]

Could be a cross trade from a client of a broker to another client
Or an exercise of options (exchange traded option)

 

[sails]

A related question: how is it that I sometimes see volumes traded before opening?

For example, looking at my watchlist at 9am might show BHP having traded a few 100,000 shares already while most stocks still show zero.

GP

GreatPig, I have taken a screen shot of the course of sales prior to market opening this morning which gives some examples of what happens overnight. The CondCodes explains the transaction where EP = Exercise Puts; EC = Exercise Calls ;OSXT - Overseas crossed trade; ONXT = Overnight crossed trade. Due to recent dividends, there are quite a few puts being exercised at the moment. TLS is another one today where there is a large number of put exercises.

Cheers,
Margaret.

 

[GreatPig]

Bvbfan & Sails,

Thanks for the info.

Cheers,
GP

 

[IGO4IT]

Hi guys,

I've heard about the codes thing, a long time trader friend of mine who was trying to convince me that brokers sometimes go "againist" an up or down trend to their benefit & these rediculus orders for say 8 shares are put on what price should the share stop & not exceed on open as a particular broker has many orders UNDER that price & if price goes higher than that particular price then broker loses the orders they have. so in theory, brokers in that case don't increase open bids above that price to help other brokers as they expect same favour, etc....

he was also telling me about the 500,000 shares BUY order that brokers usually put 2 price levels down to give an illusional bullish feeling to the company & others who trade based on Depth fall for it & consider the 500,000 shares to be a support point but actually it will moved down 1 more level immediatly if price falls down 1 level, so it will always be there but will never be executed, just to give confidence to buyers same thing with SELL orders to put price down & give a bearish feeling to stock.