A Time to Hold and a Time to Trade

Buying and selling by individual investors is especially heavy in the minutes immediately after the market opens in the U.S. at 9:30 a.m. Eastern time, when the chances of getting the best price for a stock are lower and swings tend to be bigger, traders and other market observers said.

But within minutes, the gap between the price sellers want for a stock, known as the “ask” price, and what buyers are offering, the “bid,” shrinks sharply and continues to narrow up until the end of the trading session. This quirk in the market has been amplified in recent weeks amid the big market swings.

The smaller gap, or spread, is better for investors because they are less likely to overpay for a stock or sell below the prevailing price in the market. The wider the spread, the more exposed investors are to high costs, which can erode returns at a time when major stock indexes are down for the year.

In the first half of the year, the difference between the bid and ask prices of shares in the S& P 500 was 0.84 percentage point in the first minute of trading, according to data from ITG, a brokerage. That gap shrinks to 0.08 percentage point after 15 minutes and to less than 0.03 percentage point in the final minutes of the trading day.

This difference often amounts to only pennies a share. But it can add up for the many individual investors who pile into the market early in the trading day.

Strumph, Dan and Driebusch, Corrie. "Early Birds Suffer in Market" The Wall Street Journal., Tuesday, September 15, 2015, A1, Accessed on September 15, 2015, http://www.wsj.com/articles/early-birds-suffer-in-market-1442273794