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What % of "current daily volume" would affect share price?

The daily volume of an equity is sometimes larger and sometimes smaller than the average daily volume. That is why I asked about the "current daily volume" (which I realize you do not know precisely until the end of the day). But I would be using whatever the daily volume from the previous day was.

To ask this question in a more concrete way, "if an equity is trading 1 million shares per day and you bought a lot of 1,000 shares (0.1% of the shares traded yesterday), would your purchase noticeably affect the share price?"

More generally, at what percent (of daily volume) do you think that your purchase would affect the share price?


Best Answer

  • markdmarkd mod
    Accepted Answer
    I don't think there is just one answer to that question.

    What matters is the number of shares available, or the depth, on the opposite side of your trade at the time you place your trade. If your order is for a thousand and there are several thousand, or tens of thousands available at the ask when you place your order you won't move the market at all. If there are 200 at .01, 500 at .02, 300 at .03, your order will move the market from .01 to .03 (if its a market order).

    Market depth changes constantly as the players place and withdraw orders. Some prices will usually have more depth than others - past highs, lows, closes, conventional stops, prices where there was a lot of volume before. Relevant (and sometimes irrelevant) news will dramatically change depth, too.

    Unless you have a professional level screen that shows where the bids and asks and sizes are, it's pretty hard to know where the liquidity really is. But if you are going to buy or sell in size, and you are worried about moving the price, break up your order and eat the commission costs - with a discount broker of course.

Answers

  • Thanks MarkD. You answered my question quite clearly. I understand better now; it is not just the number of shares which got traded yesterday but the number of sell orders there are at the price at which I am wanting to buy at, at that particular moment that counts.

    I am trying to get over what I believe to be an irrational fear I have left from trading a thinly traded stock back in August of 2010 when I got burned trying to get rid of it at a decent price. What I am thinking of buying a lot of now is TLT which has a daily volume of well over 8 million shares. While the volume varies a lot during the day (.5 M to 5 M), each hour seems to have over 500k. I am considering a strategy in which I sold all other positions and used all of that money to buy TLT instead.

    While I know that you cannot know for sure, but would you think that I would need to break up my order if I wanted to buy 1k (or even 10k) shares of TLT, assuming that it was selling at least 500k that hour? Any thoughts?
  • I honestly don't know. 500K in an hour is about 8K per minute, assuming constant trading.

    10K from a retail customer at one go sounds like a lot. 1K with a fill or kill order might work. But I'm just guessing.

    I think this only REALLY matters if you are trading for pennies per trade. If you are planning a longer term trade for a few points, the slippage isn't going to break the trade.

    Livermore used to say he liked the slippage because it proved he was right about the market.
  • Thanks. That took my thinking a step further in several ways. If one were buying even 1k shares expecting to make 15-20% on the move over 3-4 mo, not only would the slippage be acceptable, but 5-10 commissions (at a discount broker) would be very small money (relatively speaking). Thanks again for the insightful help.
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