All traders need to understand what a market is and what makes one market more "fairly" priced than another. A market is a place where buyers and sellers meet. The stock market is a collection of buyers and sellers who need to transact in shares of various companies.
The highest price someone is willing to pay is the bid, and the lowest price someone is willing to sell is the ask. This is known as the “bid-ask spread." A graphic showing the metrics of how a mid-price is calculated from the lowest selling price and the highest paying price was displayed. The larger the difference between the bid and the ask, the greater is the possibility that the transaction will be done at an unfavorable price. The more market participants the better. Lots of volume with a tight bid-ask spread is what makes a liquid market.
The dough platform provides liquidity ratings to make finding liquid underlyings easier. A self-directed investor has an advantage in choosing which markets to use. The cost of entering and exiting positions will generally be best in very liquid markets. A table of some of the most liquid stock and options markets was displayed. The table included equity indices, individual equities, energy stocks, metal ETFs, volatility products and a bond ETF.
Watch this segment of “Options Jive” with Tom Sosnoff and Tony Battista for the valuable takeaways, a better understanding of what constitutes a fairly priced market and why trading in only liquid markets is the most cost effective approach.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.