Opening & Closing Frenzy

[two40]

Couple of questions I've been wondering about and lost money on. haha

Scenario
Market opening in 2 min for this stock. The buy order was placed in the 2 min prior to opening and yet the sell order for 0.32 was filled by another buy order. Presumably due to some queue? How does this work? I was in this situation today being the last to place a buy at 0.37 and my order was filled at 0.35 in completely missing the 0.33. Help this newb.

..............Buy......BP.....LP....SP.......Sell
...........10,000...0.37....0.35...0.32.....10,000
.........120,000...0.35..............0.33...180,000
.........125,000...0.34..............0.35...250,000


Scenario
Market closed on this order which was not completed. Does it correct itself within x time to reflect 0.36 as the last price or does it need a transaction to change the price no matter what? I would have thought it needs a transaction but just a few min ago EVE corrected itself after close. Hmm, off to the ASX site for me...

..............Buy......BP......LP.....SP.......Sell
..........10,000....0.36....0.35....0.36...100,000
.........120,000...0.35..............0.37...120,000
.........125,000...0.34..............0.38...250,000

Under what circumstances does the market change price, if any, without a transaction occuring?

I will be researching this on the ASX site but sometimes a friendly explanation is better than technical jargon.

240

 

[Kauri]

There is what is called an auction, where the ASX take the bid and offer prices and vol and apply their own formula they come up with an averaged price. The formula can be found somewhere on their site. Some people think orders are pulled etc at the last moment to influence the price, but mainly they are absorbed in the open/ close auction. Some brokers i.e Pestpac, show the bid and offer prices and an indicated price (the price according to the ASX formula). This of course changes as more bids/offers are entered.

 

[MichaelD]

Just to expand on Kauri's post a little.

Every day before market open and close we have these auction scenarios. At these times, no actual trades go through, but bids and offers can be placed.

The market trades in strict price/time order. Sellers will place offers in the market at much lower than the anticipated auction price simply so they move up the queue and are assured of selling when the auction happens. Buyers bid higher than the expected price again to ensure they're at the head of the queue when the auction happens.

In your specific scenario;

..............Buy......BP.....LP....SP.......Sell
...........10,000...0.37....0.35...0.32.....10,000
.........120,000...0.35..............0.33...180,00 0
.........125,000...0.34..............0.35...250,00 0

The buyers and sellers here know that the expected auction price will be 0.35. So, any buyers offering MORE than 0.35 will be certainly filled at 0.35. The sellers below 0.35 also know that they will be filled at 0.35.

Neither the buyer at 0.37 nor the seller at 0.32 will be filled at the prices they are offering - they know this, but they are in the front of the queue when the auction takes place.

In this scenario, if another seller came in and offered 0.35, they would be placed AFTER the existing seller at 0.35. If, however, they offered 0.31, they would be placed at the very top of the queue, even though their order came in later.

 

[Prime]

Excellent description ... thank you.

I have often wondered why when I look at a screen before trading starts that the bid and ask prices are so different from the actual price that the stock will actually trade at.

Now I know.

 

[two40]

The buyers and sellers here know that the expected auction price will be 0.35. So, any buyers offering MORE than 0.35 will be certainly filled at 0.35. The sellers below 0.35 also know that they will be filled at 0.35.

Neither the buyer at 0.37 nor the seller at 0.32 will be filled at the prices they are offering - they know this, but they are in the front of the queue when the auction takes place.

That's almost a certainty written in stone right? So no matter what the offers they will most often be filled at the 0.35 in that kind of a scenario.

So say I wanted to get rid of a stock for sure on opening. The SP is 1.00 and there are buyers at 0.99 and sellers at 1.01. If I place my order at 0.97 it will be filled at the highest buyer being 0.99. Yes two40 that makes sense.

Nice description MichaelD, thanks.

 

[G-Zilla]

I have always thought something like this happens. Thanks for explaining it.

 

[MichaelD]

That's almost a certainty written in stone right? So no matter what the offers they will most often be filled at the 0.35 in that kind of a scenario.

So say I wanted to get rid of a stock for sure on opening. The SP is 1.00 and there are buyers at 0.99 and sellers at 1.01. If I place my order at 0.97 it will be filled at the highest buyer being 0.99. Yes two40 that makes sense.

No, it's not quite a certainty, but it almost is. The very act of putting in bids and offers can move the auction price - basically there is an elaborate rule the ASX applies to calculate the auction price which aims to pick the price at which maximum volume will be transacted. A huge bid or offer at an extreme price can move the auction price.

There's a detailed description of the exact process used on the ASX site - if you search for "opening auction" or "closing auction" you should find it. It's well worth reading through to understand what happens.

Some brokers will display the expected auction price - which I'm presuming is the middle price in the depth that you quoted. CommSec call it IOpen in their ProTrader platform, and Sanford call it IAP.

In your second example, assuming the buyer at 0.99 wants the same number or more shares than you're offering, then yes, you should sell at 0.99 on the auction.

 

[Out Too Soon]

--- brokers i.e Pestpac, sh---.

Hey Kauri, I like that )) can I use it? Can I? Please!!!

 

[Out Too Soon]

That's almost a certainty written in stone right?

So say I wanted to get rid of a stock for sure on opening.

Nice description MichaelD, thanks.

Nothing is certain if your'e using Pestpac (thanks Kauri! (D)), I recently tried doing a day trade just for the practice, it took three days for my buy (APG @ .068) to go through at market close on friday, it took me all weekend with Pestpacs shonky system to get my sell order on. Sold Monday morning @ .072. Not really a day trade, a weekend trade profitable but not worth the hightened blood pressure trying to (day) trade using using Pestpacs system.