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Author Topic: Why is the spread so large?  (Read 1814 times)
RustyShackleford
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May 20, 2011, 05:50:57 PM
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If I trade USD/EUR, the spread is usually somewhere between 1 and 3 pips (.0001). Why is the spread on MtGox so much higher, to .01 to .7 or more? What is/are the cause, effects, and remedy (it seems like a bad thing?)

I have no idea myself and and searching for "spread" on the forums did not work out how I had hoped, so sorry if this is a stale topic.

Thoughts? Explanations? Baseless conjecture? Smiley
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Yurock
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May 20, 2011, 05:56:32 PM
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Increase in volume will reduce spread.

Reducing commission fee could reduce spread.

Am I right?
mtbomb
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May 20, 2011, 11:19:23 PM
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The daily variance of price movement affects the spread people are willing to offer.
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May 20, 2011, 11:27:15 PM
 #4

If I trade USD/EUR, the spread is usually somewhere between 1 and 3 pips (.0001). Why is the spread on MtGox so much higher, to .01 to .7 or more? What is/are the cause, effects, and remedy (it seems like a bad thing?)

I have no idea myself and and searching for "spread" on the forums did not work out how I had hoped, so sorry if this is a stale topic.

Thoughts? Explanations? Baseless conjecture? Smiley

The spread is just the difference between the highest bid and the lowest ask that people offer. Generally more participants means those get closer together. The spread on Mtgox has been getting better over time.

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FooDSt4mP
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May 21, 2011, 01:45:53 AM
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The fees are much higher on mtgox.  0.65% of $7 is 4.55 cents. (I know, it's not that high anymore, but we'll be back there eventually, at $5, it's still 3.25 cents)  Add that to both sides, and you have almost a dime.  If the fees were lower, people would narrow the spread to the amount of uncertainty they are comfortable with.  Instead, they quit narrowing once it gets to the point where even if you bid and ask get met, you lose because of fees.

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FooDSt4mP
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May 21, 2011, 01:47:32 AM
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Also, don't go bitch to MagicalTux (the operator of mtgox)... with the low volume of the exchange, 0.65% is reasonable.  Once the volume is high enough, I bet he'll lower the fees.  However, he has to cover (very high because of DDOS attacks) costs.

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tomcollins
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May 21, 2011, 01:48:26 AM
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Also, don't go bitch to MagicalTux (the operator of mtgox)... with the low volume of the exchange, 0.65% is reasonable.  Once the volume is high enough, I bet he'll lower the fees.  However, he has to cover (very high because of DDOS attacks) costs.

$60,000/month?
FooDSt4mP
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May 21, 2011, 01:59:45 AM
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You're right... that figure is a little high, IMHO, but it is close.  DDOS protection is expensive, but I would think he could probably cover DDOS protection plus his hosting for half that (being very generous).  I don't know about his finances, and I guess he likely paid a pretty penny when he bought MtGox, but maybe a fee decrease would be a reasonable request.  However, if you do want to press the issue, please do it respectfully.  You'll get better results, and MagicalTux works his ass off to keep MtGox running.

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RustyShackleford
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May 21, 2011, 02:40:21 AM
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So basically more people/volume/trades which will also in turn lower the trade fee, both of which will decrease the spread. Got it, thanks Smiley
Enky1974
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May 21, 2011, 08:50:48 AM
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You're right... that figure is a little high, IMHO, but it is close.  DDOS protection is expensive, but I would think he could probably cover DDOS protection plus his hosting for half that (being very generous).  I don't know about his finances, and I guess he likely paid a pretty penny when he bought MtGox, but maybe a fee decrease would be a reasonable request.  However, if you do want to press the issue, please do it respectfully.  You'll get better results, and MagicalTux works his ass off to keep MtGox running.
100% agree, the fee it's too high and it will not allow a spread reduction because going for small trades will be unprofitable. My bank charges 0.15% as sales fee for example. 0.2% would be fine for mtgox considering the increased trading activity we i've seen so far.

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luv2drnkbr
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May 21, 2011, 09:39:53 AM
 #11

This happens whenever there's a big buyer/seller.  The spread gap will close within a day or two.

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May 23, 2011, 12:30:27 AM
 #12

Stock exchanges actually give rebates to traders who provide liquidity (those who post orders).  So trader A posts an order for 100 shares, then trader B removes the order.  Trader B pays $0.20, and trader A gets at $0.15 rebate.  Exchange pockets the $0.05.  This keeps spreads extremely tight.  As it stands now, mtgox's charge of 0.65% at $6.5 prices makes providing liquidity only viable at about a $0.10 spread.

http://www.nsx.com/content/nsx-fee-schedule

Along those lines, stock exchanges also are limited to whole penny prices (for most stocks), which prevents a flood of sliver orders one-uping each other.  This sliver pricing happens at lot at mt gox because of the lack of round intervals like whole pennies.

http://en.wikipedia.org/wiki/Regulation_NMS
elewton
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May 23, 2011, 12:56:22 AM
 #13

Would it be likely that there would be unintended consequences from a lower fee?  Increased profitability of market manipulation, for instance.
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