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Jared Dillian
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The Liquidity Problem

Maudlin Economics Jared Dillian examines stock market liquidity.

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November 1, 2000

Spreads Narrow Dramatically

By William Hoffman

Reviewing spreads with his own broker dealer online, Junius Peake, a professor of finance at the University of Northern Colorado, said he observed that the spreads on some trades had already narrowed from 6.25 cents to one cent.

Another academic, Robert Wood, a finance professor at the University of Memphis, said he expects increased use of "smart limit orders" as decimalization takes hold. These automated products use software-based instructions to quickly adapt to changed market environments.

"There are going to be great opportunities for those who are fast on their feet," Wood said.

Peake thinks smart limit orders could be a good idea under some circumstances. But he'd rather see market orders eliminated. He considers market orders a sucker's product that exacerbated the 1987 market crash.

"All [stock markets] need is one rule: First bid at the best price gets a chance to be executed, before the second bid at the next best price gets a chance," Peake said.