Why is "spreads gap" bad?
NOOB here, I get the impression that spreads gaping is bad, but I dont understand why, Can someone explain? And I dont understand why for a >6months IPO'ed company the spreads dont narrow. I see YELP and the ask and bid is as wide as it was before lockup expired. Shouldnt it have narrowed after lockup expired and the float increased?
Spreads widen and narrow out with less and more volume the euro dollar spread is 1.09 and that spread will widen during the over night session to about 2.90 that means that volume has ticked down and its less liquid. The less activity you have in a instrument the wider the spread will be, which as a trader is bad because you pay more to trade and you would much rather work with a point 1 or 2 spread then get filled at the ask 8 or 9 bucks away from the entry point,and because say on a 1000 shares that's a few k you could save in profit or loss. To answer your yelp question don't look at the number of shares freed after the lockup look at the volume traded during the day if it hasn't changed that much then you wont see a drastic change in the spread. Yelp is usually in a range of 200k to a little north a 2 million on volume in any given day aside from the I.P.O in which 17 million was traded.
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