Subject: Trading - Size of the Market

Last-Revised: 26 Apr 1997
Contributed-By: Timothy M. Steff (tim at navillus.com), Chris Lott (contact me)

The "size of the market" refers to the number of shares that a specialist or market maker is ready to buy or sell. This number is quoted in round lots of 100 shares; i.e., the last two zeros are dropped. The size of the market information is supplied with a quote on professional data systems. For example, if you get a quote of "bid 10, offer 10 1/4, size 10 X 10" this means that the person or company is willing to buy 10 round lots (i.e., 1,000 shares) at 10, or sell you 1,000 shares at 10 1/4.

Specialists report size, they do not create it. It seems that different specialists report the size in approximately three ways:

  1. Some are very precise; if a quote is 10x10 and 100 trades the offer, the size then becomes 10x9.
  2. Some use what seems to be a convention number. That is if there the size is 50x100 the specialist is reporting at least 5,000 shares bid but less than 10,000, and at least 10,000 shares offered but less than 25,000.
  3. Some seem to have no discernable method as the trading seems to be unrelated to the reported size. Thousands of shares trade the bid, the price and size remain the same, for example.
The floor brokers in front of the specialist may be more important than the specialist in this regard; the specialist is not necessarily a party to the trade as is an OTC market-maker; the brokers may or may not put their orders into the specialists' limit order book, or may cancel their orders in the book later. The floor brokers are able to change the size by bidding and offering, and cancelling existing orders, thereby affecting how others trade.

On the NASDAQ, which is not an auction market, size is usually reported as 500 X 500.

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