Wide bid offer spreads
One of the unique features of Sharemark is that it trades shares at a single price. What does this mean?
Shares in companies like Tesco change hands on a daily basis. There is lots of trading in the shares because the company is well known and has thousands of shareholders.
Shares in less well known companies may trade very infrequently and that can lead to wide bid offer spreads. Sharemark is designed to combat wide bid offer spreads.
If you bought shares in Tesco today, the price you pay for the shares will probably be more than the price you could sell them immediately for. In the case of Tesco the difference will be tiny.
The difference occurs because in the middle of every trade is a ‘market maker’. Market makers purchase shares and then sell them on, when required to do so.
Their payment for doing this comes from selling the shares on at a profit. So when you buy shares, the extra that you pay over and above that day’s selling price is the market maker’s ‘fee’.
If the market maker is only involved in buying and selling those shares occasionally, they may charge a higher fee and this leads to a bigger difference between the buying and selling price – in some cases this difference could be as big as 50%.
That means that the person buying the share has to see a 50% rise in the share price, before they can make a profit. The difference is called the ‘spread’.
There are no market makers operating on Sharemark; all the shares are sold at a single price, so even if the shares only change hands once or twice a year, people aren’t affected by wide bid offer spreads.
To find out how prices are set on Sharemark, please click here
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