Making sense of the overwhelming amount of data
The art of stock trading is a bidding war. Therefore, think of the stock market trading desk as an auction.
When you look at the detailed quote for the symbol X, TMX Group Limited on http://www.tmxmoney.com/en/index.html, you will see alot of data. I will assume in this article, the chart below is today’s closing data.
The first thing you will see is that the company is called TMX Group Limited or AKA the Toronto Stock Exchange. Next, is the stock symbol, X, as listed on the TSX. Other information is provided such as the change since the last closing price on the previous trading day and the number of shares, 70,820 shares, that have changed hands today which is called Volume.
CAUTION: Based on the Volume today, if you tried to sell a million shares using a market order while the market was open, you can expect to get an average of $50/share or less.
The reason is simple. Many of us have set limits on our asking price. Therefore, lowballers can put a limit price of $40 while others will set higher limits to buy shares at. The regular small investor can only afford to buy 100 shares, so as the 100 shares gets filled at the highest bid price, the next highest gets filled. This continues down the price chain.
Under number 1, you will see the first trade today. An unknown number of shares sold today for $65.55. An unknown number of shares sold for the highest price of $66.26. As of the market close today, we have an offer to buy 100 shares at $65.63.
Beta is a term used to theoretically determine how much the price goes up and down percentage wise. A Beta of 1 is normal price swings in the stock market today. A Beta of 2 is double, wild price swings, while a beta of .5 is 2 times as calm as the normal market. TMX Group has a Beta of .855, so TMX Group’s price swings is less volatile than the market in general.
Under number 2, you will see the last transaction $65.93, shares that traded hands, made before the market closed the previous day. The lowest price an unknown number of shares was sold for today was $65.55. As of today’s market close, 300 shares are being offered for a price of $66.00. Based on the VWAP price of $66.07, the asking price is a bargain since a price below VWAP is a bargain while a price above is expensive.
3 and 4 will be explained later
Under number 5, you will see the last 25 trades before the market closed. What is interesting is that you can see what the closing price is, the last recorded transaction and how many shares for each transaction. Based on the data provided under number 5, you will see that stock trading is a buyer and seller agreeing on a price.
The buyer and the seller
As of closing today, Sue, Joe and Harry are asking for $66/share for their shares. They are holding 100 shares each. 300 shares total.
Jerry wants to buy 100 shares for the low price of $65.63/share.
There are more buyers, Mary, Jane and Bob, who are willing to buy X number of shares for less than $65.62/share. There are also more sellers, Tim, Sarah and Martha, willing to sell X number of shares for more than $66.01/share.
When the market opens tomorrow, the current buyers and sellers may decide to change their bid or asking price. They may also never sell since other people may pop in and agree on a price of $65.75/share which is in between the bid/ask spread. So, the market is all about matching buys with sellers.
I am sure there are over 100,000 shares currently in the bid and ask. Unfortunately, we can only see the lowest asking and the highest bidding price and quantities. The other traders are hidden from view.
Doing a trade, I saw a message after the the stock that I bought. Therefore, I decided to ask a question.
David: I see the message WE ACTED AS AGENT AVG PRICE – ASK U. What does this mean?
Agent: WE ACTED AS AGENT simply means that the order was done by us.
David: So, the order was not sent to a broker on the TSX?
Agent: It is still sent to the exchange to be filled.
David: Is there a difference between we acted as agent and having no message at all. Before, I would just get traded with no other message
Agent: It should always say “WE ACTED AS AGENT”. There are only rare cases where your trade would be done in house with another client then it would say something like “PRINCIPAL”
Agent: When clients trade securities through Questrade, the positions are listed in street form rather than in the account holder’s name. What this means is that while you own the position, the security is not held under your name. This is to facilitate operational efficiency in allowing you to quickly trade the position without encountering extra processing work or fees.
Agent: This is why it says “WE ACTED AS AGENT”.
Placing a security buy or sell order
When it comes to placing an order, there are lots of options for selling. The one that comes to mind is GTC (Good til Cancel), GTEM (Good til end of month), and GTD (Good til Date). Therefore, I decided to ask my broker how I will be charged. This is the answer I got.
If your order gets partial fill, filled 2 or more times in the same day, you are charged a commission only once. If you order gets filled, but it takes more than 1 day you will be charged commission separately for each day. Therefore, in order to get charged a commission only once, the order must be filled the same day. So, all trades must be completed on the same day.
Another issue is the option to use either market order or limit. I have gotten into the habit of placing limits. If a price hits my limit, the order will try to go through.
I have gotten frustrated a few times because I set a limit at say $27, and the security reached a high price of $26.99. Since the price of the security never reached $27, it never sold. It got sold, eventually, at a price higher than $27, but it is nerve-wracking when it gets close to the limit price then drops.
Placing a market order is risky due from the fact that you will pay the price as of the current trade. Therefore, if the price drops 50% when the trade goes through, you will get 50%.
Analysts will tell you to never place a market order when the markets are closed. The reason is simple. Buy and sell orders are visible to everyone once placed. Therefore, the security buyers and sellers can rip you off when the market opens.
Buying or selling securities in odd lots
When it comes to buying or selling securities, they are sold in lots of 100. Therefore, when you buy or sell in denominations less than 100, it is called an odd lot. It is said that odd lots are harder to buy or sell than round (100) lots. Furthermore, it seems that odd lots can be bought or sold at market value only. Therefore, odd lots are “odd”. You may get less than the current price posted. Unfortunately, if you want to buy or sell an odd lot, you must accept the terms of the trade.
Mixed lots are lots sold in odd lots over 100 such as 199 shares. These can still be filled, but it is always recommended to stick to the standard lot sizes.
The standard lots sizes as dictated on the TSX’s dictionary as of Nov 23, 2011 are:
A standard trading unit as defined in UMIR (Universal Market Integrity Rules). The board lot size of a security on Toronto Stock Exchange or TSX Venture Exchange depends on the trading price of the security, as follows:
- Trading price per unit is less than $0.10 – board lot size is 1,000 units
- Trading price per unit is $0.10 to $0.99 – board lot size is 500 units
- Trading price per unit is $1.00 or more – board lot size is 100 units
As of May 18, 2017, it seems that odd lot orders do work with Limit orders. Therefore, if you cannot buy in board lot sizes, buy in odd lots.
David: If I use the GTC order, can I place an odd lot size order such as 50, 10, or 133 shares for a stock or an ETF?
Agent: GTC (Good till Cancelled) orders can use odd lots for any stocks or ETF’s. Please note that GTC orders will expire after 90 days.
Buying or selling securities in large quantities
I once asked a question on a forum. The question I asked, “If I sell a million shares in one company, will I get the posted price for a million shares.
The answer, “Selling in such large quantities may flood the market. Therefore, one may not get the price indicated for all 1 million shares if the market gets flooded. In the case of flooding the market, the price will decrease as there are more shares available to purchase than buyers to take them up. The theory of supply and demand comes into play. If demand is greater than supply, the price may go up. If the supply is greater than demand, the price may go down. Although, this is not always true when it comes to the stock market. There is the odd case when the opposite happens.
Mistakes made buying or selling securities
For some things, I am able to guess what things will go up or down. Unfortunately, I can only give an educated guess based on the stuff available in the paper and online. For example, when construction went belly up in Canada, I knew it will, but I did not know when. It could have been 1 year from now or even 5, 10, 15 years. It would come as a surprise to me if it continued to be a red hot sector indefinitely. After all, there was plenty of news going around saying that we were in a housing bubble, and it was going to burst eventually. Therefore, I believe that when things go up too fast, it usually will come back down to earth eventually. It may not be a crash, but it may slow down, start a downward trend or even plateau.
Since we are on the topic of bubbles, the most recent bubble that is being talked about is the housing bubble in China, the gold bubble and the bond bubble in the USA.
China housing bubble at http://www.washingtonpost.com/wp-dyn/content/article/2010/01/10/AR2010011002767.html
Gold bubble at http://www.cnbc.com/id/42104279
As for the housing market in Canada, I am expecting a slight downturn in prices in 2012. Am I psychic? No, I just read the news. Lets see if the analyst’s prediction is accurate that this is based on.
For the stock market, I do not even try to predict if it will go up or down. I think long-term. The market goes up in the long-term. Therefore, I believe in the saying. Good things come to those who wait. Hopefully, the market does not crash when I decide to sell. After all, I am having a difficult time trying to differentiate between the noise from the real news.
Therefore, market-timers and people who believe that they know the exact time things will happen should be millionaires or will soon be millionaires. If I could do that, I could afford to buy a private beach.
Nevertheless, an educated guess is just a guess. There will be some margin of error when making predictions. Therefore, take as much risk as you are comfortable with. There is no such thing as a sure thing. Furthermore, analyst’s expectations are just educated guesses. Taking their word as good as gold is a bad thing to do. After all, I hear periodically how X company missed, met, or exceeded analyst’s expectations.
10 mistakes investors make can be read at http://www.dailyfinance.com/story/investing-basics/10-mistakes-investors-make/19740743/
Preventing a missed opportunity
Quite often stocks will reach a price that one will either want to buy or sell at. Therefore, there a few things every investor must have.
Limit order – Every trading platform should have a limit order. This tells the person buying the security on your behalf that you will only buy the security when it is at that price or lower.
Stop-loss order – For my particular trading platform, there is no stop loss order. Therefore, if the price drops, I will have to sell it manually. A stop loss order will ensure that if the price hits a target low or lower that you set, the broker will try to sell the security immediately. An article that talks about this can be read at http://www.investopedia.com/articles/stocks/09/use-stop-loss.asp. This particular order is useful when a company security is entering a free-fall state.
Alerts – For those who are unable to automatically set a price to automatically buy or sell at, alerts can be set up. Creating an account with Alert Tape, http://www.alerttape.com/index.html, or Zignals, http://www.zignals.com/main/stock_alerts/stock_alerts.aspx will allow you to get alerts through email, text message, or other viable method when a price reaches a target you set.
I have not used these websites yet, therefore, I cannot comment on them.
Being an educated investor I will provide the tools that may help others wanting to understand the different methods people may use to purchase securities. Fundamental Analysis and Technical Analysis are two disciplines for analyzing securities.
http://www.morningstar.com/cover/Classroom.html will teach you the basics of building a securities portfolio and how to use fundamental analysis. You can also get a 30-day free premium subscription by creating an account and passing the tests.
For those looking for an idiot proof income from securities,
Stocks almost guaranteed to make you money
Funny as it may sound, there are companies that may never go bankrupt in any environment. NYX and the NDAQ on the New York Stock Exchange as well as the X on the Toronto Stock Exchange are perfect examples. NYX is the New York Stock Exchange and the NDAQ is the NASDAQ where companies pay to get their companies listed publicly in the USA. The X is the Toronto Stock Exchange which currently seems to have a monopoly in Canada.
For those looking for a safe investment, these companies will most likely survive any crash or burst. After all, if these companies crash, listing a company on the public market may become a challenge. Furthermore, it seems that governments want to keep these companies alive and within their countries for economic and/or security reasons.
Where to look for important information
The TSX, http://www.tmx.com/en/news_events/exchange_bulletins/index.html, has reports on the top companies that have the most short positions. This list is important due from the fact that the investors who are shorting a company in large quantities may know something that regular investors have missed. In any case, these investors who have taken large short positions can be wrong, but if you see a company that you want to invest in on this top 20 list, that company may require another look.
When it comes to the 10-K (annual report), look over the notes on the back pages carefully. I have seen companies where the notes contained information that steered me away from them. Notes can contain vital information that will alert you to potential problems ahead before it happens.
I have seen companies where the notes have contained information about lawsuits in progress, lawsuits settled, corrections to previous quarterly reports that were both positive and/or negative, and the use of personal vehicles that were charged to the company as an expense.
When a company’s stock prices is dropping like a rock, the notes may give an indicator of what happened.
http://www.morningstar.com/ is a good resource for both Canadian and American stocks. Typing in the name of a company, you will be able to get information on competitors, the largest holders of bonds and/or stocks, and other information not available on their counterpart http://www.morningstar.ca/. The picture below is a screenshot of how much the largest groups own of Telus.
Morningstar’s stock screener is a tool I use to find stocks that match my filters. I look for dividend paying stocks that are large or medium cap. A useful tool to find companies worth a second look. http://www2.morningstar.ca/tools/screener/ca/Stockscreener_b.aspx?region=CAN&culture=en-CA