March 30, 2018
As a retail investor I am, of course, not exactly enthused about the
prospect of a 5c tick size for certain stocks. It represents a five
fold increase in trading costs for these securities. It would be a big
retrocession and a dramatic reversal of what has been, up to now, a
general trend toward lower retail investment costs.
What might really decrease liquidity in less heavily traded stocks
seems to me not to be a too small tick size for retail investors, but
the fact that high frequency trading activity discourages (non
marketable) limit orders. With a best quoted bid of 9.99 HFT
computers will offer 9.9901, or even just front run without any "price
improvement" whatever. They frequently leave some single shares
through, leaving the retail investor with a partially filled order of
one or two shares, on which a commission has to be paid and then an
extra commission if the investor then would want to get rid of that
ridiculously small position in the stock. Also, if the HFT computers
allow the retail order to go through, it is very often because a lot
of selling pressure has emerged and then you would have been better
off to wait a little to get a much lower price.
I include some further comments of a much more specialized nature in a
separate post.