Walt,
I'm afraid you may have read something into Cash's reply that isn't there about buying at the bid. Here's a bit more info about SOES and related systems.
Market Makers are brokerage firms (dapartments within those firms) that sign up with NASDAQ to have that status. They are obligated to publish their bids to buy and offers to sell to the public, but they are passive participants in SOES. The public has to initiate or "execute" a buy or sell with a MM on SOES. If you use SOES, you will always buy at the ask, or sell at the bid, although the bid and ask may change between the time you enter an order and when it gets executed. You can enter a limit order on SOES, but if it is a sell order above the ask, or a buy order below the bid, it gets thrown out immediately.
When you place an order with an online broker, it does not go to SOES unless it is a marketable order (buy at ask, sell at bid), because it would just get thrown out. It may go to an electronic computer network (ECN) like Island. When it's the best order in the ECN it gets displayed on the NASDAQ level II screen with all the MM bids and offers. If it's placed between the bid and ask, it will change the spread. No one can use SOES to buy from or sell to a MM if there is a better price on any ECN, BUT they cannot use SOES to buy from or sell to an ECN either. Traders who have access to SOES and other systems must preference an ECN to execute an order, and usually pay an extra fee too. If you place an order to buy at the bid, or sell at the ask, you are probably joining a MM at that price. The MM can be executed by SOES, and probably will be. You cannot. That's why you usually don't get executed when you try this.
If an MM chooses to match an ECN price that was placed between the bid and ask, they become eligible for SOES executions. They will often do this. Being first at your price does not mean you will get an order executed, even when other orders are executing at that price. Sometimes the MMs don't want to match your price. They can wait for someone to execute your order, or they may even choose to execute it to get you out of their way. They can do this because it is not a SOES order, and they can use ECNs just like everyone else.
And no, this does not apply to all stocks. The "listed" stocks (those on the exchanges, NYSE, AMEX, etc.), have a different system that can be less automated. You may find yourself depending on the broker to get orders into the system for you, not always a good thing. But if you are willing to pay the asking price, or buy at the bid you should get good executions. If not, find another broker.
Dan |
