The Spread

Wednesday, 8th April 2009 12:22 - by Boredmum

One of the mistakes that I have made Trading has been not paying attention to the Spread (the difference between the ‘Buy’ and ‘Sell’ prices) on a share. It is so important to be aware of it and to do some sums before you buy. I bought a share with an sp of 0.38 pence, paying 0.43 pence ‘Ask’ (Buy) and the ‘Bid’ (Sell) price was 0.33 pence at the time. I was taking a bit of a punt buying in on some information that turned out not to be good, but I reckoned that even if it didn’t rise I could get out at 0.33 pence. I didn’t spend much, only buying 100,000 shares and with dealing costs I spent a total of £445. It was already rising fast and had been ticking up easily on little volume. Well, that is where the rise stopped, it ticked down once to 0.28 pence Bid late in the day and opened the next day at 0.23 pence Bid. If I sold I was looking at £215 returned (after costs), a very quick loss of £230 - more than half my money invested. So look at the Spread, look at how much it will cost you to buy and look at what you get if you sell, think about what happens if it ticks down and look at how much the sp needs to rise before you will make a profit.