Hello NightOwl,
Your synopsis is valid -- to a point. But there is much more to the markets than what you discuss. Most of what the public discusses on the newsgroups and BBS are just the tip of the iceberg.
Remember, the only reason for the existance of any public market for securities is so corporations have a marketplace to deliver new issues. This allows them to raise cash (through syndicate investment banking groups). Because they can raise cash this way, they can avoid incurring new debt from borrowing. The markets (exchanges, OTC and third markets) must have an infrastructure which can be controlled to some extent to promote orderly markets, and to insure that a marketplace will exist for the IPO and subsequent offerings.
A fully electronic marketplace is unfortunately one step from Utopia. But individual investors can protect their pocketbook by becoming more fully educated about the current system.
For example -- those investors who rush to the broker of the moment offering the lowest commission rate do not understand how the markets are structured. Sometimes they may get a bargain, other times they'll be burned by getting bad executions. The sad fact is, many do not know enough to even recognize a bad fill, or worse, think they've gotten one when they haven't -- this is because they are woefully ignorant on the mechanics of the marketplace's structure.
I believe investors are asking to be fleeced if they do not understand the principles of trading and investing, the marketplace, basic economics, the psycholgy of greed and fear, and have self-discipline and a plan for trading/investing. They must also understand the different ways a brokerage firm can be compensated.
It all adds up to 'Caveat Emptor", let the buyer beware.
Most investors, especially newer ones, have no idea what 'price improvemen't, 'third market' and 'rebates' really are, or how they can be used beneficially or detrimentally. Many investors think they're saving big when they pay 'only' a $12 commission, but fail to realize or grasp the significance of 'price UNimprovement' and how a 1,000 share listed trade could cost them $125 extra unnecessarily. To them, it's invisible.
Terrence |
