Bid and Ask Prices: Tricks of Brokers

[Stockbear]

Here's one trick played by brokers!

The daily bid & ask on stocks are determined by buy and sell orders.

Stocks are bought at the "ask" price and sold at the "bid" price. Most trades in the world today are do electronically. Therefore, most brokers don't even have to go to the trading floor (NSE trading floor) to execute their trades, even in Nigeria.

I visited two brokerage firms last November (2006) and watched them buy and sell stocks electronically from their offices. Believe it, buying and selling of stocks in most advance countries is like the haggling process in the market, but on a more sophisticated manner.

For example, let assume a stock closed at N30 yesterday. Additionally, lets assumethe stock is Dangote Sugar and it is in high demand.

Before trading starts today, most brokers will post their buy and sell orders on their electronic trading system. These buy and sell orders are seen by all brokerage firms that have access to the electronic trading system. However, there are tricks to the trade too.

Some brokers may occasionally hide their sell orders to create artificial scarcity and drive the price of the stock up. And as soon as the price goes up they dump their shares on the unsuspecting buyers.

Therefore, if demand exceeds supply the stock will open higher than it closed the previous day. If supply exceeds demand the stock will open lower than it closed the previous night.

Remember that there is a 5% threshold in Nigeria. Therefore stocks cannot increase or decrease more than 5% in a given day. However, during the trading day the stock will vacillate between the upper and the lower 5%.

[c kenneths]

I ve also noticed that the price that my broker buys shares for me is slightly different from the closing prices I get on the net. For instance, if a stock closed at 3.65k my broker has just bought it for me at around 3.70-3.78k.
In the same vein, when I want to sell the same stock, it will be sold for around 4.88k while the market closed at say 4.95k.
Well I have learnt how to handle this, I just fill a mandate form each time I want to buy or sell, specifying at what price I want my stock bought or sold.

[Stockbear]

There are good and bad experiences at Cashcraft. My experience of it is not so good to-date. I suspect a scam going on with specific client accounts. These accounts (mainly overseas based clients) I assume are chosen at random.

When you pay in money, it will eventually get credited to your account, Phase 1 - between the time it gets credited and the time they are supposed to buy you shares, the money gets invested for the account manager's (and possible accomplices) own gain, somehow.

Phase 2 - Your order does not go through, neither is there any communication with you. The time between when you pay money in and when the actual purchase is made they have made a cool profit.

Then they buy your shares at a rate higher than you specified.

Isn't this a brilliant way of skimming money from people?