In this post we take a look at spreads because spreads are now becoming a core part of trading on Football Index and helping you to understand the underlying trend in a player.
Remember, as at the time of writing, the sell price is the average price of the top 300 bids, so the first 10 or 50 or 100 might be higher than the indicated price you see. Full visibility of the order book will come when Order Books has been fully integrated.
What is a spread?
A spread is the price difference between the sell price and buy price as a %.
Let’s take a look at Neymar’s prices:
Neymar has a current spread of 0.6% – which is referred to as a tight spread meaning the difference is small. The sell price of £9.77 is an average of the top 300 bids placed by potential buyers.
Now let’s take a look at Christian Eriksen’s prices:
The spread here is 22.5% which is referred to as a wide spread.
In both cases, they can tell you lots of things about underlying trends and if it’s worth buying at a discount or cashing out at a big discount. Note, there will be players with a spread of 50% or more in many places.
What does a tight spread tell me?
A tight spread indicates that there are buyers fighting to be first in line (liquidity) for any sellers who want to sell their Neymar shares.
Point B on this chart is when spreads have tightened.
Due to the volume of buyers, they fight amongst each other to be first in line – and as a result, the sell price increases and closes the gap with the buy price.
Going back to Neymar’s price above, if you are a buyer it says “you can buy from the market immediately at £9.77 or you could put an offer in slightly above the current highest price and wait for a seller to match your offer”.
However, as a seller, it says “you can sell to another bidder immediately for £9.71 or you could wait for someone to market buy from you at £9.77 (assuming you’re first in queue)”.
Waiting could see his sell price decrease over time – so you may decide to sell up when the spread is small as can be. In this case you can quickly cash out for a 0.6% hit on your profit.
What does a wide spread tell me?
Let’s revisit Eriksen’s spread again.
Spread here is 22.5% and could be represented by points A or C on the chart below.
If you are a buyer, you can bid around £1.62 and wait for someone to cash out and match your offer. If your bid is matched then you get a 22.5% discount on the current market price of £2.09.
If you are a seller, you don’t want to sell at £1.62 so you might wait until the sell price increases before you decide to sell. If you do sell for £1.62, you would take a 22.5% hit on profits/losses.
In both cases here, a wide spread indicated buyers don’t value him at the current market price (£2.09) and the sellers don’t want to sell at the average bid price of the top 300 bids (£1.62).
Eriksen was 22.5% last week, now his spread is 8% – what does this mean?
Keeping an eye on spreads now is crucial.
When you see spreads closing or widening, it can tell you when players are undervalued or overvalued.
Let’s use the below chart again as an example of a real life scenario:
Point A: Spread is 15% and some buyers notice Eriksen has some easy games coming up for match day dividends or IPD opportunities. So they start to bid to try and get a 15% discount before others rush in.
Point B: Spread is now 3% and some buyers who bought in at point A decide to sell up and take the profit – others continue to bid higher in search of this dividends.
Eriksen plays in 2 games and performs badly and traders sell out whilst the spread is small.
Point C: Due to his poor performances the spread has increased to 22.5% – this now presents an opportunity for current holders to add some more on the basis that they’ve bought for the longer term AND encourages new traders to start bidding again in the hope of Eriksen improving his performances over the short term.
All this time, if you look at the buy price – it’s hardly moved – all the action has been going on underneath. This is where the liquidity is.
So basically ‘spreadspotting’ is a thing?
When the spread is widening, it can mean the holders are selling to best sell price and they’re removed and the next best bids are now front of line – and those bids could be pretty low.
Spotting when one of your existing holds has a wide spread (but you still believe he has potential) could be a good opportunity to put in some bids/offers of your own at a higher price to increase your holding but still at a discount price.
Whereas, when you spot spreads are narrowing (getting smaller) it might be a time to think about cashing out – or holding on as traders seem to appreciate his value and thus, competing against each other to get matched at a higher price than the next trader.
How do I keep an eye on spreads?
We recommend using our new MyIG portfolio, watchlist and player screener tool for premium members.
Using MyIG, you can monitor spreads of players in your portfolio or watchlist.
Or you could scour the player universe and keep an eye on who has the smallest or biggest spreads over time.
We will be launching some new features on top of this soon to help monitor holds more closely.