1 Cent Movements
This might be a bit of a NewB question, but I don't see any topics posted on this exact question anywhere.
Is there any way to make money on 1 cent movements in stock "Last" prices? Here's where my logic says no.
A stock has the following characteristics - "Last" shows at $5.00. Bid is at $4.99 and Ask is at $5.00 (really "Last" just shows at $5.00 - in reality probably $4.995) . If I buy this stock, I'm paying $5.00 per share. If it goes up, 1 penny, Bid is now at $5.00 and Ask is at $5.01. If I sell the stock now at that "Bid", it's at the same price, $5, less commission. Is there any scenario where this plays out at a profit? It seems strange to me that you can't actually realize the 1 cent gain of a stock here. Is it possible to buy a stock at the $4.995 mark - a mix of $4.99 and $5.00 - and then sell it at the $5.005 mark - mix of $5.00 and $5.01?
Sorry if this question is dumb, but I'm trying to understand where my logic is faulty above. Or, if that logic is correct, and I, for example, bought and sold the same stock at the same 1 cent spread between ask and bid without movement, then I'm repeatedly losing a penny, but then who is getting that penny and how did they get it.
It seems like I should be able to quickly buy at the $4.995 mark in this scenario (half $4.99 and half $5.00) and then sell at the $5.005 mark (half at $5 and half at $5.01) - or something similar? I just want to understand how that could be accomplished.
Market Makers are the ones who get to arbitrage the bid/ask spread. This is how they get paid to make the markets more efficient. I haven't spent a lot of time learning exactly what it is they do because it is only relevant to the retail trader in that the markets are more efficient because of it. They are the High Frequency Traders that are willing to take the other side of whatever you are willing to do just to get the order flow.
Read your question again so let me take another shot at a more pertinent answer. As retail traders we have to buy off the "ask" and sell off the "bid". You will not be able to arbitrage the spread (spread= the difference between the bid and ask). The "mark" or "last" is just what it was last traded at. It does not mean you will get an order filled at that price unless there are shares bid or offered at that price or better.