buy or sell ??27 Apr 2021 23:19
Those of us who have traditionally invested in small cap AIM listed stocks are familiar with the SEAQ trading system, where the share trader/investor buys from and sells to a market maker, via his stockbroker. The market maker is the middleman. His job is to do exactly as his name suggests - make a market. Without a market maker, if you wanted to buy some shares, you would have to ring around other shareholders and find one willing to sell to you at a reasonable price. If you wanted to sell you would have to find a willing buyer.
But the market makers relieve investors from such drudgery by providing a point at which - within specified limits set by the LSE - we can buy or sell as many shares as we wish. If the market maker doesn't have any shares, then it's up to him to find some when we want to buy. He is also obliged to take in shares, even if he has more than he really wants, if we wish to sell. This exposes market makers to risk, and in return for shouldering that risk, market makers expect to be paid. Their payment is the difference between the price they are willing to sell at and the price they are willing to buy at.
In any one stock there will usually be several market makers. Each will have his own set of buy and sell prices. For the purpose of deciding what price investors can buy or sell at, all prices from the individual market makers are set alongside each other, and the "best" price rules. i.e. the lowest "offer" (the price at which the MM will sell shares to you) and the highest "bid" (the price at which the MM is prepared to buy shares from you). The gap between the two prices, often quite large, is known as the "spread" and the so-called "mid" price is halfway between them.
When an investor buys or sells stock from/to a market maker, the transaction is reported to the stock exchange. Each transaction is, of course, both buy and sell. You are the buyer or seller, and the market maker is the other party in the transaction. However, only one trade report is required. The transaction reports are published by the stock exchange with a trade type of O, and services such as ADVFN,iii and MoneyAM, who have a "feed" of information from the exchange, will list the transactions on their Monitor/Watchlist and Trades pages. Some years back, all the online services thought it would be a good idea to attempt to list these transactions as buys or sells, and devised a guesstimate system - if a transaction is executed at a price above the mid-price, it is placed into the buy column. If executed below the mid-price it is placed in the sell column.
Now, unless trading is intense and prices moving rapidly, these buy/sell columns are fairly accurate, and represent a reasonable estimate of the amount of buying/selling BY investors FROM/TO the market makers. Some large trades which are multiples of the Average Daily Turnover are published up to three days after execution, which can distort the numbers. (See the LSE website for the post-MIFI
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