Fight The Power! - FAQ
Contents:
How do I evaluate my broker?
Where do I find a list of brokers who meet the criteria you suggest to evaluate my broker?
How come I got a terrible fill or no fill at the open, after a halt, or the first day an IPO traded?
Where can I learn about the rules that my broker and or the market maker must follow in attempting to execute my order?
How are NASDAQ orders processed?
Where can I learn more about how my trades are executed?
What do I do if my Remote Execution System Fails?
If my broker's explanation is not satisfactory where can I complain?
My question is not answered here. Are there any other resources on the web that might help me?
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How do I evaluate my broker?
Make sure know what you want from your broker. Good/fast executions, immediate confirmations, reliable data and software, great client service, competitive fees, good website, excellent reporting, good short list, and access to all execution systems. Make sure the broker is reputable and has a good capital base behind it.
There are two basic kinds of brokers:
Brokers who receive orders by direct order entry software and/or those which receive orders via phone.
Brokers Offering Direct Order Entry Software
Make sure you know your needs before looking at these brokers. They are meant specifically for active traders who are knowledgeable about the ins and outs of trading.Currently Real Tick III dominates the landscape and is very flexible and is offered by many firms including MB Trading,JPR Capital, etc. Also CyberTrader which is offered by CyberBroker and some other firms is widely used.
A step below this are the browser based systems such as those offered by Datek,Etrade,Web Street,Waterhouse,Discover, etc. Unfortunately these systems have failed to be reliable during peak market hours and combined with current NASDAQ Order Handling Rules make them useless for short term trading or any other trading for that matter.
Phone Based Brokers
Using the phone eliminates the worry of reliability of direct order entry and allows you to concentrate on the market and is probably most suitable for the majority of people. The key issue here is the quality of execution you receive and how efficient the firm is at answering the phone and transmitting orders. Phone based brokers should answer your calls within 2 rings and NEVER put you on hold for longer than 1 minute. Phone based brokers should have multiple execution systems available to them and should not be routing all of their NASDAQ orders to ther market makers for execution(sometimes refered to as payment for order flow)
There are very few quality phone based firms around so look hard. Yamner Inc. is one.
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Where do I find a list of brokers who meet the criteria you suggest to evaluate my broker?:
The Final Frontier Links
Subject 20613
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How come I got a terrible fill or no fill at the open, after a halt, or the first day an IPO traded?
Most large discount brokers your order is routed to one of the largest market makers in the country to be executed along with 100,000's of orders from other firms.
NASDAQ Order handling rules protect you under normal conditions, but if it is at the open, after a halt or is an IPO the market maker has TOTAL discretion as to when he executes the order. Typically the market maker will not execute limit orders until he has completed all executing all market orders. Then end result being that you either get:
1) A terrible fill in a volatile market if you have placed a MARKET ORDER.
or,
2) No fill until many minutes or even hours after you have entered your order with your broker if you entered a LIMIT ORDER. Sometimes brokers will not confirm if you have a fill or not for days in peak volume periods!
Read the 98-78 bulletin "NASD Clarifies Operation Of The Limit Order Protection Rule During Unusual Market Conditions" to understand how your broker is protected from taking reponsibilty for bad execution at the open,IPO's and after halts:
nasdr.com
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Where can I learn about the rules that my broker and or the market maker must follow in attempting to execute my order?
Read the NASDAQ Trader's Manual which explains the rules that NASDAQ market makers must follow:
nasdaqtrader.com./trader/tradingservices/marketwa...
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How are NASDAQ orders processed?
The Process Of A Typical NASDAQ Trade(A buy of 200 shares of ONSL through XYZ Securities.Inc):
1) Order Received from client.
2) Order filled by
A
- Firm's trading desk acting as principal
- Firm's trading desk acting as principal and market maker
or
B
- routed to a market maker's trading desk acting as principal
3) The receiving trading desk executes the trade, or re-routes it to an ECN
4) Once executed the seller prints the trade to the Nasdaq on the ACT system with the two firms locking in on ACT.
(ACT is a system which permits firms to "meet", electronically, and confirm a trade, lock it in so neither can back away later).
5) ACT sends the trade to your clearing firm. If you bought ONSL ...200 ONSL is delivered electronically (on ACT sheets) to your clearing firm the next day.
6) On trade date, your firm books into your account at the clearing firm the trade. It is matched, reconciled with the stock being delivered by ACT. if the price or any item is booked wrong, it is referred to as a break.ie..you bot 200 ONSL 109 1/4.... clerk enters it incorrectly as 19 1/4. The next day the clearing firm sends a break:
XYZ Securities Inc:
ONSL 109 1/4...booked 0 Compares 200
ONSL 19 1/4 Booked 200 compares 0
This is referring to what we booked into your account and what the street side is coming in with. In this case, an erroneous confirm goes out to client which is followed with a cancelling confirm and then a corrected confirm. Basically its a small goof up on the trade, yet hopefully the client was not brain dead and didnt think they got 19 1/4.
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Where can I learn more about how my trades are executed?
From The Trading Desk
Subject 15612
NASDAQ Execution Systems Explained(read the Yamner University section)
yamner.com Trader's Manual
nasdaqtrader.com./trader/tradingservices/marketwa...
NASDAQ Market Makers
nasdaqtrader.com
NASDAQ Trader
nasdr.com
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What do I do if my Remote Execution System Fails?
Remote Execution System Failure - Contingency Plan:
1)Know how to contact your broker in case of problems. Have several backup numbers in case the lines are busy.
2)Know what your broker's procedures are concerning phone in orders/questions.
3)Discuss your broker's liability with regards to missed trades/opportunites. What will he take responsibilty for and under what conditions. Reading the NASDAQ Order Handling Rules is highly recommended
4)Be sure to follow through on orders regardless of execution problems. Hesitation to follow through on trades could cause many headaches including missed opportunities and larger losses. You may not take a loss at the time but a change in your strategy may lead to larger losses down the road if you hold the trade longer because of execution problems.
5) Be sure you now how to reboot your system as quickly as possible. Always find out what the problem is before you waste valuable time trying to reboot. Sometimes the system may be down for lengthy periods of time.
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If my broker's explanation is not satisfactory where can I complain?
Email The SEC To Complain
sec.gov
How The SEC Handles Your Complaint Inquiry
sec.gov
NASD Complaint Program
nasdr.com
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My question is not answered here. Are there any other resources on the web that might help me?
Stock Detective
stockdetective.com
Discount Broker Hall Of Shame:
Subject 19738
ARBITRATION - What to do after your broker screws you?
Subject 20254
Caution on discount internet brokers
Subject 14021
SEC Rules
Subject 23404
(IMHO)
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