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Limit buy question -- once again

Ricky Zamboni
Private citizen
Join date: 4 Jun 2004
Posts: 1,080
05-25-2006 19:23
Re:/139/74/109180/1.html

Yes, Kelly, you're still misunderstanding. Kaz and I are talking about the effects of placing limit buy and sell orders.

Once again:
(a) I place a limit buy order for L$350,000 at L$340/USD. When someone else comes along and performs a market sell, this is the first waiting order to be sold to. Since this is a limit order, I don't expect instant completion.
(b) My limit buy order is filled, costing me $1029.71.
(c) I post a limit sell order for L$350,000 at L$321/USD. When someone else comes along and performs a market buy, this is the first waiting order to sell. Since this is a limit order, I don't expect instant completion.
(d) My limit sell order is filled, netting me $1052.18 in revenue after fees.

Once again, I've made just over $22 in profit, and in doing so pushed the best sell price to L$321/USD (or L$1 higher than before). This round-trip transaction will force traders to place their buy orders higher (at say L$342/USD) in order to make profit. And, since traders will be driving the market, Kaz expects a downward pressure of L$5-6 per day and has asked the question:
"My question is; do you see such daily L$ traders as a problem for the economy and will take necessary actions for it or not?"

If you're still not getting what I'm saying, please re-read this post carefully and check my numbers. If you can reproduce my results, then you'll know you're understanding things.
Kelly Linden
Linden Developer
Join date: 29 Mar 2004
Posts: 896
05-26-2006 09:12
Ahah. Sorry, I was confused before. Yes you can make some money trading limit orders.

I believe this is normal market behavior. And generally the gap between open limit orders will close to where this is not profitable.

Also, one of the questions was about this sort of trading causing the market to move in a particular direction. I do not think it will. To place the first filling limit buy you must put it L$1/USD lower then the current best, and to place the first filling limit sell you must put it L$1/USD higher than the current best. When talking about moving the market, these should cancel each other out - well, they should at least close the gap.

However the effect of how we display data, how market buys and sells work, and the various default options may have a different effect on this, as pointed out by other residents in this forum. It would also make sense that such day trading could cause the market to move faster, in whichever direction it is inclined to move.

As must be obvious from my previous confusion, I am not a market specialist. I will leave over the answering of any market questions to those more qualified.
_____________________
- Kelly Linden