What are we looking for?
This week, Number Cruncher will try to show you a few things you might not normally see when you decide to buy or sell a stock. Think of it as a look at what really makes the market tick.
To do this, we are going rely on some ongoing research by Alison Crosthwait, head of research at ITG Canada. She has been crunching numbers for institutional clients to find out what you need to know to get the best price you can.
Today, we're going to track down the stocks that have been the easiest to trade on the S&P/TSX composite index this year.
More about today's screen
The universe of stocks here comprises all the names that were in the S&P/TSX composite during the first quarter. One of ITG's specialties is looking at the action not only on the TSX, but also on the alternate trading systems and the data here reflects that.
While there are a few ways you can define "easy to trade," the measure we're looking at is a ratio Ms. Crosthwait calls "liquidity on the quote" - basically how many shares are on offer on both sides of a quote.
To calculate this ratio, she tallies the median bid and ask sizes on offer and divides that by the median daily volume in the stock. Higher ratios generally mean a stock is easier to trade for a retail investor because there is more volume available to match up the buyers and sellers.
The advantage in measuring things this way, Ms. Crosthwait said, is that you get to see how meaningful a quote actually is relative to how much the stock usually trades. You also avoid the distortions big blocks cause when you look at measures such as volume or value traded.
What did we find?
The biggest surprise was Great Basin Gold. From Ms. Crosthwait's perspective, it is "astounding" for a stock to have 5 per cent of its median daily volume at the quote on a daily basis. That sort of liquidity is typically available after a takeover is announced (Enerflex Systems made the list for that very reason), but it is unusual otherwise. To Ms. Crosthwait, that suggests there was a lot more electronic involvement and retail interest, fewer block trades, and less volatility in the first quarter, making it easier for the average investor to get into and out of it.
At the other end of the scale, the names that look most difficult to trade by this measure turn out to be some of the biggest names on Canada's benchmark index. The high dollar values of the shares, and the U.S. liquidity available for all of them, make it unlikely that a retail investor would have trouble trading these names. But it is worth noting that any time you go to buy or sell these shares the market is thinner than you might expect.