5 ms·

>This is called the Bid-Ask spread, and its always, always, always non-zero. Stocks have bid-ask spreads of a penny, but Pokemon Cards, Houses, Lumber, etc. etc

>This is called the Bid-Ask spread, and its always, always, always non-zero. Stocks have bid-ask spreads of a penny, but Pokemon Cards, Houses, Lumber, etc. etc. all have a spread in reality. There's never one price for things, there's a buyer's price vs a seller's price, the bid and the ask. If a bid-ask spread can be positive (as in a stock where the bid is lower than the ask) and can be negative (as in your house example where the bid is higher than the ask), why can't it be zero? It seems like you're conflating the bid-ask spread with consumer/producer surplus that arises from being willing to buy/sell at prices higher/lower than the market clearing price.

dragonwriter 5y ago
> If a bid-ask spread can be positive (as in a stock where the bid is lower than the ask) and can be negative (as in your house example where the bid is higher than the ask), why can't it be zero? It can be, and indeed the Micro 101 model is that in ideal conditions it will be for an infinitesimal slice of transactions that actually take place, as all potential transactions with a 0-or-higher bid-ask spread will occur, but that the average across the market of all voluntary transactions will always be positive.
- CrazyStat 5y ago
  >as all potential transactions with a 0-or-higher bid-ask spread will occur, bid-ask spread isn't a property of transactions, it's a property of markets. Transactions will occur when someone is willing to pay at least as much as a supplier is charging. The bid-ask spread is how much less the highest bidder is willing to pay than the lowest seller is asking. It's a measure of how far apart buyers and sellers are from making a transaction, at a moment of time in a market.
  - dragonwriter 5y ago
    > bid-ask spread isn't a property of transactions, it's a property of markets The upthread poste by dragontamer which introduced it seemed to ascribe it specifically to particular transactions, and I responded to what waa described in that post, viewing terminological minutiae as less interesting than the concept being discussed for which there seemed adequate clarity in context.
    - CrazyStat 5y ago
      Well yeah, that's why I felt like they were conflating two different topics. The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k.
      - dragonwriter 5y ago
        > The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k. It kind of is if its a transaction that both parties are considering because the buyer has no more attractive properties (considering asking price) to buy, and the seller has no better bids. Its a different kind of market because houses aren't non-differentiated mass commodities, but from the perspective of either the buyer or seller the opposing offer is equivalent to the price on the opposite side of the market in stock trade, once things have been narrowed to the best alternative to either do the transaction or not.
jfengel 5y ago
It can be exactly 0, but that's the exception, not the rule. If you treated them as true real numbers, the odds of bid and ask being exactly identical are zero. In reality we round the prices to some minimum unit of currency (or rational fraction thereof), so it's not impossible for the difference to be precisely zero. Nonetheless, it demonstrates why it's not zero sum in general. If it happens to sum to zero, it's by coincidence, not a fundamental truth of the market.
dnautics 5y ago
even if the bid-ask spread is zero, the fact that someone put a bid at that price implies they value the item more than that at most that exact amount of money, and if someone put a ask at that price, that implies they value at least that much money more than that item, so it is STILL a non-zero trade. Note that the bid-ask spread is a LOWER BOUND ESTIMATE on the amount of utility created by a trade, which is almost always nonzero. Of course values are subjective, so you could press the "issue bid" or "issue ask" button and a fraction of a second later have your values shift, and then have the automated system execute trades... But I would say... that's life. Maybe don't click certain buttons if your preference schedule is so flighty? Also, sure, someone could have a (metaphorical) gun to your head when you place the bid, which introduces external factors which could violate the platonic ideal that these trades must create positive value.

dragonwriter 5y ago

> If a bid-ask spread can be positive (as in a stock where the bid is lower than the ask) and can be negative (as in your house example where the bid is higher than the ask), why can't it be zero? It can be, and indeed the Micro 101 model is that in ideal conditions it will be for an infinitesimal slice of transactions that actually take place, as all potential transactions with a 0-or-higher bid-ask spread will occur, but that the average across the market of all voluntary transactions will always be positive.

CrazyStat 5y ago
>as all potential transactions with a 0-or-higher bid-ask spread will occur, bid-ask spread isn't a property of transactions, it's a property of markets. Transactions will occur when someone is willing to pay at least as much as a supplier is charging. The bid-ask spread is how much less the highest bidder is willing to pay than the lowest seller is asking. It's a measure of how far apart buyers and sellers are from making a transaction, at a moment of time in a market.
- dragonwriter 5y ago
  > bid-ask spread isn't a property of transactions, it's a property of markets The upthread poste by dragontamer which introduced it seemed to ascribe it specifically to particular transactions, and I responded to what waa described in that post, viewing terminological minutiae as less interesting than the concept being discussed for which there seemed adequate clarity in context.
  - CrazyStat 5y ago
    Well yeah, that's why I felt like they were conflating two different topics. The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k.
    - dragonwriter 5y ago
      > The bid-ask spread on a stock exchange doesn't really the same as my be willing to pay $350k for your house when you would be willing to go as low as $300k. It kind of is if its a transaction that both parties are considering because the buyer has no more attractive properties (considering asking price) to buy, and the seller has no better bids. Its a different kind of market because houses aren't non-differentiated mass commodities, but from the perspective of either the buyer or seller the opposing offer is equivalent to the price on the opposite side of the market in stock trade, once things have been narrowed to the best alternative to either do the transaction or not.

jfengel 5y ago

It can be exactly 0, but that's the exception, not the rule. If you treated them as true real numbers, the odds of bid and ask being exactly identical are zero. In reality we round the prices to some minimum unit of currency (or rational fraction thereof), so it's not impossible for the difference to be precisely zero. Nonetheless, it demonstrates why it's not zero sum in general. If it happens to sum to zero, it's by coincidence, not a fundamental truth of the market.

dnautics 5y ago

even if the bid-ask spread is zero, the fact that someone put a bid at that price implies they value the item more than that at most that exact amount of money, and if someone put a ask at that price, that implies they value at least that much money more than that item, so it is STILL a non-zero trade. Note that the bid-ask spread is a LOWER BOUND ESTIMATE on the amount of utility created by a trade, which is almost always nonzero. Of course values are subjective, so you could press the "issue bid" or "issue ask" button and a fraction of a second later have your values shift, and then have the automated system execute trades... But I would say... that's life. Maybe don't click certain buttons if your preference schedule is so flighty? Also, sure, someone could have a (metaphorical) gun to your head when you place the bid, which introduces external factors which could violate the platonic ideal that these trades must create positive value.