[How Nasdaq Trades Work]
Barry,
I posted this quite a while ago but it answers some of your questions. Hope it helps.
John
Nasdaq is a 'market of dealers' and not an auction market like the NYSE. Nadaq dealers operate over a network and may not be in the same location whereas NYSE trades are conducted on the stock exchange floor.
Let's say you are a large trader wanting to buy 25,000 shares of a stock when the quoted price is 15 bid, 15 1/2 asked.
Your broker/market maker has only 10,000 shares in inventory. He sells you 25,000 shares at 15 1/2 using his 10,000 and by going short the other 15,000 shares. Reported volume is 25,000 shares.
Now he is exposed and must replenish his inventory if he is to fill new customer buy orders. He goes to the inside dealer market where the stock is 15 1/8 bid 15 3/8 asked and buys 25,000 shares at 15 3/8 for a quick 1/8 profit of $3125 (not bad!). Actually he may make less if his buying causes the inside (and outside) market to change. Reported volume is now 25,000 + 25,000 = 50,000 shares.
If one of the other brokers makes up the sale to him by buying stock to replenish his own inventory, the reported volume will be even higher. On Nasdaq, an average of 2.3 shares are reported for every customer share traded.
All this is going on in a short period and is not necessarily reported on the 'tape' in the sequence outlined above, so it is almost impossible to determine from the 'tick' whether the order is a buy or a sell. |
