Q&A  |  FEB 2011

Q&A by Don Bright

MIDPOINT TRADING WITH PENNIES Hey, Don, I had a quick question for you about midpoint trading. Not sure if you know the exact answer, but figured was worth a shot asking you. I have a buddy who trades Citigroup actively — he just trades to make the spread. For example, C is bid offer 4.16/4.17. He works both sides looking to make the penny. So if he gets hit on his 16 bid, he looks to sell 17s. I told him his life would be much easier if he could sell the 16.5s (as there is always a ton of volume trading in between the spread). I told him it makes sense to work both sides (or maybe only one side if there is a huge bid or the stock is sitting on support), but then to enter a trade trying to get out for that half-cent profit, since most of the volume seems to be trading at that half cent. He told me recently that he was scratching most of his trades and the electronic communication network (Ec n)/dark pool fees were eating him alive.

by Don Bright