In the example given by Ms. Plain, what was the spread for the GHT stock just prior to execution?
a. $0.06
b. $0.02
c. $0.04

George White, CFA, and Elizabeth Plain, CFA, manage an account for Briggs and Meyers Securities. In managing the account, White and Plain use a variety of strategies, and they trade in different markets. They use both market and limit orders to execute their trades, which are often based on algorithmic methods. Their supervisor has asked them to compose a summary of their trading records to see how various strategies have worked.
Their supervisor also asks them to assess the costs and risks of the various types of trades. The supervisor specifically asks Mr. White and Ms. Plain to explain the difference in risks associated with market and limit orders. After Mr. White and Ms. Plain explain how limit orders can give a better price, the supervisor asks why they wouldn’t always use limit orders.
As part of the discussion, Ms. Plain explains the issue of spread. She uses a recent example where the quoted bid and ask prices of GHT stock were $25.40 and $25.44, respectively.