A $30 stock has a 1 cent tick, a spread pinned at one tick all day, and 20,000 shares resting on each side of the touch. Explain what that depth tells you about the value of queue position, and what the marginal maker in that queue earns.

A $30 stock has a 1 cent tick, a spread pinned at one tick all day, and 20,000 shares resting on each side of the touch. Explain what that depth tells you about the value of queue position, and what the marginal maker in that queue earns.

Approach: Ask what makers can still compete on once the spread is already one tick wide, then impose a zero profit condition on the last share added to the queue.

The marginal share at the back of the queue earns zero, and the 20,000 shares of depth are the price of that equilibrium. With the spread pinned at one tick, price competition is impossible, so the only remaining competition is time priority and depth grows until the expected profit of the last share added is zero. Break the pieces out: the half spread is 0.5 cents, adverse selection on a fill costs roughly 0.35 cents, so a fill at the front of the queue is worth about 0.15 cents. Entrants keep joining until the fill probability at the back multiplies that 0.15 cents down to the cost of monitoring and cancelling. A binding tick constraint converts what would have been a price rent into a queue rent, and the rent accrues to speed and to whoever can rest size earliest in the session.

Follow-up: The tick is halved and the spread widens to two of the new ticks. What happens to total displayed depth and to the maker's expected profit per share?

Key concepts: tick constraint, queue position, time priority, zero profit condition, adverse selection.