Besides, it's my understanding that ECNs will only deal with limit orders....market orders still have to go thru a MM.
KJ, this isn't exactly accurate. Datek's ordering routing procedures allow market orders to be matched on the Island ECN. This may be a special case due to Datek's majority ownership of this ECN. Not sure if other OLBs would have a similar incentive to route market orders this way.
Let me give you an example. If I place a market order to buy a stock, and there is currently a matching offer to sell on the ISLD ECN, Datek will route the order there and instantly fill the order, generally in less than 1 second. Only if there is no ISLD offer, then the order is Selectnet'ed to the market for a fill. I'm not sure if they receive payment for order flow now (I know they did not use to).
And if anything, the continuing reduction in trading costs (i.e., AXP free trade announcement, EGRP volume discounts, etc) will continue to drive increases in trading activity. That said, I wouldn't want to own any of the OLBs.
I agree with this 100%. I was considering these OLBs, namely SWS and NDB, but never pulled the trigger.
estimates that NITE makes about 1 cent per share on retail trades and 6 cents per share on institutional trades. So institutional trading is pretty important.
The 1 cent number is interesting. I would guess the "majority" of orders executed earn .0625. Subtract from this the payment for order flow and you probably arrive at the .01 number. I'd guess the "minority" orders that make more than .0625, and those that make less than .0625 (yes, they do lose money on many, many executions) probably cancel each other out. Or at least that's what they count on :) Its amazing that with such a razor thin trading margin, that they only have had a few "losing" trading days (this was asserted by KP in that Fortune interview).
Gary |
