Why use stockbrokers/market-makers?


R

rodyraskol

Hi,

Quick question - if I want to purchase shares, why do I need to go
through a broker (and market makers?). If I can just find somebody else
who wants to trade with me, then we can do it at some agreed price,
avoiding the market makers spread and brokers' charges.

Am I missing something here? The only thing I'm not sure about is the
stamp duty. Presumably company registrars don't deal with this.

Cheers,

Rody
 
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A

Aztech

Hi,

Quick question - if I want to purchase shares, why do I need to go
through a broker (and market makers?). If I can just find somebody else
who wants to trade with me, then we can do it at some agreed price,
avoiding the market makers spread and brokers' charges.

Am I missing something here?
Liquidity?
 
T

Tumbleweed

Hi,

Quick question - if I want to purchase shares, why do I need to go
through a broker (and market makers?). If I can just find somebody else
who wants to trade with me, then we can do it at some agreed price,
avoiding the market makers spread and brokers' charges.

Am I missing something here?
Yes, lots. And FWIW thats what lots of online brokers do in any case, for
example I recently bought 310 shares at market, and got them as 4 lots of
10,100,100,100, all at v slightly diff prices (3rd decimal). Presumably they
came from 4 diff sellers.
 
R

Rody

Aztech said:
Liquidity?
Yes of course. Here I was thinking in particular about some shares I
was going to trade on OFEX with a friend. So poor liquidity is a given
anyway in this case.

But in a security that's traded more frequently, surely it will be
easier to find someone willing to the opposite position.

Say for example I own security A which has a bid-offer of 90-110p, so a
midpoint price of 100p. I want to sell my holding of 1000 of A. I can
go to a broker and sell them for 90p, getting £900 for them.

Alternatively, I sell them in a newsagents window/local paper/ebay for
100p and get £1000. Indeed possibly I could sell them for 109 and make
£1090, and it would still be a bargain for the buyer.

Now if we're talking about some already illiquid stock, then I guess
this would be difficult to do. However, if we're talking about BP or
GSK etc shares, then surely there will always be some investors who are
willing to buy and sell at any given time (i.e. a liquid market).

Rody
 
A

Aztech

Rody said:
Now if we're talking about some already illiquid stock, then I guess
this would be difficult to do. However, if we're talking about BP or
GSK etc shares, then surely there will always be some investors who are
willing to buy and sell at any given time (i.e. a liquid market).
Ahh, true, I suppose the solution is to always use a broker with decent
spreads. You could always set up an internet exchange of sorts to facilitate
that, but once you have to deal with settlements, accountability and
compliance you will be back to square one, the overheads probably wouldn't
offset the volumes and better pricing available on the main market.
Undoubtedly the FSA would then also like to talk to you about running an
unregulated shadow market!

If it hasn't already been done there's probably a reason, maybe we already
have 'efficient markets'.
 
T

Tumbleweed

But in a security that's traded more frequently, surely it will be
easier to find someone willing to the opposite position.
Really? How?
Alternatively, I sell them in a newsagents window/local paper/ebay for
100p and get £1000. Indeed possibly I could sell them for 109 and make
£1090, and it would still be a bargain for the buyer.

LOL. You dont think the price might have moved in the week or so it will
take to do the deal then by newsagent or local paper????!!! Not such a
bargain for the buyer if the price is 50p when he comes to write his cheque
out! Perhaps he wouldnt do it in that case? OTOH if the price is now 150p
each, he'll snap them up!
 
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T

Tumbleweed

Aztech said:
Ahh, true, I suppose the solution is to always use a broker with decent
spreads. You could always set up an internet exchange of sorts to
facilitate that, but once you have to deal with settlements,
accountability and compliance you will be back to square one, the
overheads probably wouldn't offset the volumes and better pricing
available on the main market. Undoubtedly the FSA would then also like to
talk to you about running an unregulated shadow market!

If it hasn't already been done there's probably a reason, maybe we already
have 'efficient markets'.

It has already been done, or at least in the US, some of the brokers I use
there have been matching trades for years. You can look to see what shares
at what price are being offered though this changes by the second,
obviously.
 

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