No. of Recommendations: 4
Charlie writes: Any bond position of "marketable" size should be able to be sold at the current best bid or better..

"Just how is that possible?", you might ask. "How can a would-be seller sell his securities at a better price than the current best bid?" Let's step back and do a bit of review.

Whether a securities market is controled by "specialists" or "market makers" (which are terms you need to look up if you don't know the difference), the market will be "two-sided", and, typically, there will be queues of would-be buyers and queues of would-be sellers all trying to get some action. How deep the queues are will depend on the market.

E.g., with futures on the long bond, the depth could easliy be ten or more on both the buy-side and the sell-side. With an illquid/thinly-traded stock, the depth of the queue could be a single offer and a single bid. The listing of the orders (to buy or to sell) is "the book". Some books can be accessed freely. For some, there are fees. E.g., E*Trade provides the book on some corporate bonds, not all, just as they provide both the Ask and Bid for some bonds, not all.

Regardless of whether you can see a two-sided quote, a two-sided quote exists. Someone, somewhere, will be willing to sell, at some price, and someone will be willing to buy, at some price. The national-best offer --i.e., the lowest price at which anyone is willing to sell-- and the national best bid --i.e., the highest price at which anyone is willing to buy-- is called "the inside market." That's a very important term. So understand what it means, which is this. If you want to buy "at the market", you are "lifting the offer". If you want to sell "at the market", you are hitting the bid. But you also have the opportunity to "step in front of the offer" or to "step in front of the bid" by being willing to offer out your securities at a lower price than the current best offer or to bid to buy some securities at a higher price than the current best bid.

If you suspect that what you have to sell is desirable and the current market action would justify letting prices comes to you, then don't hit the bid. Instead, set your price to match the offer or, if you're in a hurry, step in front of it. If nothing happens, only then go ahead and hit the bid.
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