Crossed Market, Two Venues

Question

The same stock trades on two venues. Venue A shows a bid of 100.02 for 500 shares; venue B shows an offer of 99.98 for 300 shares. What do you do, what's the gross profit in dollars, and why do such opportunities exist at all?

Accepted Answer

The market is crossed: someone bids more than someone else asks. Simultaneously buy 300 at 99.98 on B and sell 300 at 100.02 on A: the executable size is the minimum of the two legs: 300 times (100.02 - 99.98) = 300 times 0.04 = mathbf12 text gross. With taker fees of, say, 0.3 cents per share per side, net is 12 - 300 times 0.006 = 10.20, fees matter at this scale. Execution reality: fire both legs at once with immediate-or-cancel orders. The real risk is getting legged: one fill, one miss, which leaves you with inventory and direction risk instead of an arb. Speed and atomic-ish execution are the product. Why it exists: fragmentation plus latency. Quotes update asynchronously across venues; after news, one venue's maker cancels a beat slower (the stale-quote story, played across exchanges). In US equities, Reg NMS discourages displayed locked/crossed markets, so these windows live for microseconds to milliseconds, which is precisely why capturing them is a technology race. Persistent-looking crossings usually mean fees, access constraints, or a lagging data feed creating a mirage. Traps: sizing to 500 shares (you can only do 300); ignoring fees; trusting unsynchronized timestamps

Crossed Market, Two Venues

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