While I do see that Steve here has been rather enthusiastic at times about his firm, I do agree with him on this conflict of interest issue. I can tell you one thing about your freind right up front here. He does not deal with 5,000 and 10,000 share blocks to trade for a profit on 1/2 or 3/4 of a point change in the stock.
Now lets think about this. Lets say you get filled and you are "scalped" by 1/2 of a point. You would expect this with the floor traders of an exchange and even a MM, but your broker who is supposed to represent your best interest? 1/2 of a point is $2,500 with 5,000 shares and $5,000 with 10,000 shares. If you consider this monopoly money, then give it to me. This $2,500 or $5,000 can end up being part of the the trader's loss on a trade that did not work out, instead of coming close to breaking even. Multiply this out many trades, since the trader does make many trades through the week. So what are we talking about here? Not that this would happen every time, but lets say an active trader makes 10 trades a week, and 45 trades a month. Lets say this trader gets taken for 1/4 point for 10 of those times trading. This demonstrates there is a possibility of up front giving up $12,500 to $25,000 per month in their trading before they have a chance to make any money at all. Now as you can see, this amounts to in one month a significant amount of money. Even half of that would be a significant amount of money to give someone. Wouldn't you say? Heck, many live off of less than $6,500 per month and do so comfortably and raise families and send children through college and more.
The point here is that very few are in the position to really appreciate the value of that extra fraction of a point until they are in the bigger money. Then not only will getting "scalped" that fracion of a point matter, but with respect to short term trading like day trading, this is what they are attempting to make a profit on. Then I think you can see in this case the $8 commissions is penny wise and pound foolish. And I also have to say here that utilizing an online broker for the trading of big money is ludicrous. "Fool" is not the word for them. But this is my opinion and my knowledge of online systems talking here.
If your freind does not trade in these amounts, then perhaps the practice of order routing and the other practices he mentions like the brokerage acting as principle in a trade would not have an adverse effect on your freind. But never get in the way between a serious trader and their money. It is with many even their livelihood. I do not know about you, but I am looking to be trading in large blocks of shares one of these days. That is the natural outcome of sucess in the stock market.
Bob Graham |
