medium · Market Microstructure mmf-core
A 'Value Trader' calculates that ZXC is worth $60 based on earnings data. The current market price is $55. The trader's total estimated cost to trade (spread + impact) is $1 per share.
Why might the trader still choose NOT to buy?
- Regulation NMS bars traders from trading against fundamental value.
- The mispricing does not exceed the required 'margin of safety' (risk premium)
- They are acting as a passive market maker and must stay inventory-neutral.
- The effective spread on ZXC is currently too narrow to be worth crossing for this trade
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