Think or Swim Tutorial - Trade Grid and Market Liquidity

This tutorial shows how to use the Trade Grid in the Think or Swim Trading Platform. By the end of this article you will be able to understand on your own how much liquidity lies behind a Stock you would like to trade in. If you find this tutorial interesting read also Think or Swim Tutorial - The Level II screen and the Trade Grid.

How to place the most rewarding options strategies from scratch? Visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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In order to comprehend the Trade Grid you need to understand what is the Stock Market and how the Stock Quotes are formed. The Stock Market and the Options Market are simply a place where potential buyers and sellers meet. It is not more than an electronic auction. Any financial asset traded here presents a Bid and an Ask price.

The Bid price represents the price submitted by a buyer and it is the highest price which someone is willing to pay in an specific moment.

The asking or offer price represents the smallest price at which a seller is willing to sell his/her shares in a specific moment.

In the Stock Exchange all Bids and Offers flow in from many brokers and Market Makers. Each Order, that is collected and recorded electronically in real time, is formed by the price (asked or bid) and the quantity (once again asked or bid).This electronic process continues rapidly gathering hundreds of thousands of orders in the Bid and Ask columns. What is important to know is that:

• The asking column is ordered from the lowest price to the highest.
• The bidding column is ordered from the highest price to the lowest.

Make sure you keep in mind that buyers place bids and sellers place offers. In order to easily remember this rule, you can help yourself by using two analogies.

1. Think of e-Bay. This is nothing more than an electronic auction where people place items for sale. People who list items on e-Bay are sellers, while people who are interested in purchasing those products, as in the Stock Exchange, have to submit a Bid.
2. Think of the terminology you should use when you sell your house. You will say to the potential buyer: “I’m asking for my house $100,000”. This will be the lowest price at which you are willing to sell your house.

Free Tutorials - Stocks, Options and ThinkorSwim. Click Here.

When you get a Stock Quote, you are looking at the two orders close to the centre of the screen. They are the two orders having the closest price till that time. They are called the Insight Quote and are nothing more than the highest Bidding price and the Lowest Asking price. When an order is filled, it means that the asking and the bidding prices are matched for the quantity requested and offered.

In addition to the Insight Quote, you can also see an information called Size, that shows how many lots of 100 shares are available at each price. For example, a size = 1 * 2 (Size of 1 by 2) simply tells you that there is one lot of 100 shares available on the Bid side (to buy), and two lots of 100 shares available on the Ask side (for sell).

The Size is important to understand because many traders believe that you can buy and sell as many shares as you like at each of the respective prices. This is simply not the truth. It can happen that when you place a big order and no Market Maker steps in to provide liquidity, you can get a so called Multiple Fill. This simply means that your order will be filled at different prices on the basis of the quantity available at each price. Before you place any order is interesting to know how much size there is behind the Insight Quote. In order to know that it’s very important to use the Trade Grid.

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Do not forget to visit my website at www.FromZeroToOptions.com to get tutorials, instructions, articles and much more stocks and options related.

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The Trade Grid can be found in the ThinkorSwim platform under the “Trade” tab and the section “All Product”. It allows you to literally see the following information flowing in real time:

• all level 2 quotes behind the Insight Quote;
• the sizes available for each of these level two quotes;
• how much liquidity lies behind the Insight Quote.

You can easily expand or collapse the Trade Grid menu by clicking on the blue arrow next to it. In the Trade Grid, after taping in a Stock Symbol, you can see under the column “Ex” a list of Market Makers or Exchangers (ARCA, CBOE, NASDAQ INT, etc.). On the left side, you can see under the column “Bid” their corresponding bids and under the column “BS - Bidding size” the size of these bids. On the right side, you can see the column “Ask” and the corresponding column “AS – Asking size”.

Before you place a relatively large order be sure of checking your Trade Grid and avoid in this way unwanted surprises.

The Trade Grid has features available to you. If you click the small blue arrow next to the symbol and go to gadget, you can bring directly in the Trade Grid: live news, charts, Level 2, Dashboard, Active Trader, Times and Sales. Under gadgets you can also maximize the grid cell. You have the ability to grid things out, get a configuration you like and save it. You can detach the Trade Grid, drag it to a separate monitor and open up to 6, 9 grids or even as many as 20 grids. And you can set each one of these individual cells to any feature that you would like.

Free Tutorials - Stocks, Options and ThinkorSwim. Click Here.

In the next GroWithYou Trading Tutorial:

• The Level II Quote Display
• Rise in the Stock price: buyers outnumber sellers
• Decline in the Stock price: sellers outnumber buyers
• Saturation Point: equilibrium between buyers and sellers
• Understanding Strength or Weakness in a stock
• Bonus - Free Mini Video Tutorial

Keep learning about Exercising Stock Options by going to: Think or Swim Tutorial - The Level II screen and the Trade Grid.

Here you can find a mini “free video tutorial” prepared by the professional traders of the "Options A to Z" company that can help you in understanding all the concepts discussed in this article. For further information visit the website at www.optionsAtoZ.com.

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