Explain it to me like I'm 5: How should you build (or clear) a share holding?
What is the best way to accumulate or clear a shareholding? I've seen people referring to the process of accumulating shares as building a position and I don't really know what that involves.
Say I am a private investor (hence no special access or privilege) with a well established ISA (so have funds) and I want to acquire 10K shares in Bloggs plc (BP), maybe £25K-50K so not a huge sum. Clearly I want to get my shares as cheaply as I can and if I try to get all 10K at once the price is likely to rise, sharply.
Or will it? Should I not expect a discount for buying in bulk? If not, then to avoid moving the price against me I may need to accumulate in smaller quantities.
If the EMS is 500 is there a difference between buying in lots of 500 vs lots of 5000 (dealing costs obv)? Does timing matter? Is multiple buys on the same day a poor strategy?
Are limit buys public knowledge? I.e. if I place 10 limit buys for 1K shares is it obvious there is a buyer out there?
Similarly with selling, clearly dumping all 10K at once is not likely to get me the best price. Is this where selling amounts at or below EMS is an advantage?
I don't really know how this works, tell me.
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4 comments
I am no expert and I am afraid I don’t know much about limit orders, but here is what I do.
I am not a full time investor, I can’t trade whenever I like or watch the screens all day so I don’t want to get stuck in a position that I can’t exit relatively quickly - within 2-3 trades at most. So I pay attention to the average daily volume and will watch my position size and sometimes may not even enter a position if it is very low. I don’t have a firm rule but if my position size was over 50% of the average daily volume, I would start to pay attention.
When it comes to buying and selling I rarely use limit orders , but I will usually put in dummy trades of different amounts to see what the difference is on price combined with fees etc. Sometimes you do get a better price on larger or smaller amounts, depending on if you’re buying or selling.
By paying attention to this stuff I have built (or sold) positions in a share in the same day without it affecting the price too much if at all, but it does rule out some smaller shares. I leave those for the more experienced full time investors.
I recently asked AJ Bell Who keep my SIPP. A limit order literally just sits there waiting for the price to be crossed, when it does, the limit order jumps into action and tries to buy / sell at the best price either way. I asked whether the market could see my bid? Not at this level of service was the answer (execution only). I believe you can buy this service with other more expensive brokers.
My understanding is limited orders to buy are not known, when a price falls below the set target then it should trigger a buy order in the market at that price, sometimes it will not be filled and sometimes it will be, it can also be at a lower price. I sometimes do leave a limited order on a share I want, saves looking all the time at the share price.
As I understand it (and I expect to be corrected):
If volume is low, spreads widen and it is easy to affect the price even to the extent that your trade can set the price for the day. I have low spread as part of all of my screens.
I believe that limit orders are visible, however, Saxo (my broker) often crosses my trade with several others under the limit so it is matching against other visible orders somehow. Sometimes the final match is for only a few shares and I can't imagine that someone is selling so few so I've no real idea how these algorithms work.
If you are buying a significant amount not flagging your intentions is one strategy, backing off if the price rises. As is drawing a line in the sand (a limit order). Telephone dealing, if an option, can get you a better price. Some brokers also offer algorithmic orders that split larger orders, match to typical volume, have access to 'dark pools' etc.. I've used these options twice. They come with no guarantees and you may only get a partial fill. If it is difficult to buy this is generally considered bullish. If you place a large limit order and it is immediately filled then someone was/is looking to shift in bulk.
Being a significant part of average daily volume is something I've learnt to avoid.