Definition of touch line


What is a sideline?

A band line is the highest price a buyer of a particular security is willing to offer, or the lowest price a seller is willing to offer (or sell) at any time during the trading day.

Therefore, the band line is represented by the supply and demand margin of a security. As supply and demand move, so will the sideline.

Key takeaways

  • A band line is the highest bid and the lowest bid, represented by the tightest bid-ask spread on a security.
  • The bid price is the highest bid someone is willing to post at that particular time, and the bid is the lowest bid price someone is willing to bid at that particular time.
  • Bid and ask prices are not static – someone can either sell directly from the bid or buy directly from the bid, which eliminates the shares posted at that price.

Understanding a touch line

A sideline specifies the best offer or request for a particular security at any given time. Highly liquid securities will generally have a narrow buy-sell margin, while illiquid securities will have a wide margin. The EUR / USD currency pair, for example, is considered very liquid and therefore has a small bid-ask spread.

If a security has multiple buyers bidding at $ 5, $ 5.10, and $ 5.15, the sideline bid price would be $ 5.15. This is the highest price at which someone is willing to post an offer.

At the same time, if the stock has multiple sellers at $ 5.20, $ 5.30, and $ 5.35, the selling price of the sideline would be $ 5.20. This is the lowest price at which someone is willing to post an offer. The bid-ask spread for this security is $ 5.15 for the bid and $ 5.20 for the ask. The spread, or the difference between supply and demand, is $ 0.05.

Spread of supply and demand

A band line represents the best bid and / or bid price for a given asset. This is related to the bid-ask spread, which is the amount by which the bid price exceeds the bid price of an asset in the market. The bid-ask spread is essentially the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept to sell it.

The bid-ask spread reflects the bid and ask for a particular asset, with the bids representing the demand and the bids representing the supply. The depth of bids and orders can have a significant impact on the bid-ask spread, making it widen substantially if one exceeds the other or if both are not strong.

Market makers and traders exploit the bid-ask spread and the depth of the bids and request to offset the spread difference. This is one of the main ways that traders and market makers make a profit. For example, a market maker might bid at $ 5.10 and also bid at $ 5.15. If someone sells to the market maker, the market maker will have bought at $ 5.10. If someone buys from the market maker at $ 5.15, the market maker will have earned $ 0.05 for each share traded.

The size of the bid and ask spread from one asset to another differs mainly due to the difference in liquidity of each asset. Some markets are more liquid than others. Some less liquid assets can have spreads of up to 1% or more of the offer price.

Example of a band line in an active stock

The image below is a screenshot of the bid and ask prices on Twitter Inc. (TWTR) at a particular time during the day.

TradingView

The bid price is the highest bid someone is willing to post at that particular time, and the bid is the lowest bid price someone is willing to bid at that particular time. For this image, the offer contact line is $ 40.12 and the offer contact line is $ 40.13.

The bid and ask prices are not static. Someone can sell directly to the offer or buy directly from the offer, which will eliminate the shares listed at that price.

In this example, there are 1,000 (10 x 100 shares or 10 x round lot) shares that are being offered at $ 40.12. If someone sold 1,000 shares at the offer price, the offer price would no longer be $ 40.12, but the next highest offer. In a liquid stock, the next offer or offer is usually 1 cent below the current offer, or 1 cent above the current offer. In this case, the next offer would be $ 40.11 under normal circumstances.

www.investopedia.com

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Mark Holland

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