Earl,
Let me deal with your second question first. Those huge spreads you see are most often Market Makers playing games. There is no protection from it under the present system *except* to put in your order at a limit( if your firm will take OTC limit orders--many will not,or, only on a limited basis) and refuse to be moved off your price. Make the order " day only" and assess the situation after the market. Same thing on the sell side. I don't know if you can do this with E*Trade or not, but I also tell my broker(Schwab) not to show my order to the other market makers using the electronic small order system. If the bandits see you, they will always move ahead of you. Once again, welcome to the NASDAQ!
The second question is far more complex. Stocks can begin trading for a lot of reasons including nefarious ones. Often, a MM will have filled his sack with a stock he likes to trade at a lower price, especially if it is a low priced ( under $5.00) stock and will manipulate the market up so that his brokers can put the stock out for " net price"(that is, ostensibly no commission) and move the merchandise at a very good profit to the firm. I was with a firm that used to do that with a stock that traded with a range of about .50 to $2.00. They were the major market maker and would suck up all the stock they could get at very low prices (50 cents, say) and then show orders to the market that would push it up to, say, $1.75. The brokers of the firm would " work on the inventory" by telling their customers they could get them a deal: abc stock at $1.75 net whereas other buyers would have to pay commission on top of the $1.75. When the piece was gone (usally 75000 to 200,000 shares) the stock would go dead again; new market makers would die off; the process begins again. The point here: what part did fundamentals play in all that? You guessed it. None!
Finally, the dealers come and go on a daily basis. The Internet will play no role there.
More later.
Bob |
