Peter, Thanks for your informative post. It's good to know that Datek does not trade in this manner. And I would not begrudge a company their right to earn a profit either. While I was reading the following article, I was wondering if Datek does not indeed make a profit off of the spread (this appears to be an acceptable and legal practice). Does Datek do the following (You may have already answered the question, but I am still not clear on it):
Any brokerage firm can act as a principal in a client's transaction, without having to be a listed market maker. A firm may act as principal in listed and over-the-counter stocks, options, and fixed income securities. In doing so, the firm will execute transactions for the client while attempting to make a spread. For example, if you wish to sell 1000 shares of abcd stock at 10 1/4, the firm will, if the stock reaches those levels, take your stock into the firm inventory account at 10 1/4. Most of the time, the firm will only buy your stock when the stock is bid 10 1/4. At the same time, though, the stock is offered higher. The firm then tries to sell the stock at the current offer, or at a price higher than at which just bought stock, attempting to realize a profit for the firm.
Thanks in advance for your reply,
Jack |
