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Non-Tech : Bid /Ask Spreads - Market Manipulation
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To: geoffrey Wren who wrote (215)11/26/1996 12:49:00 AM
From: Rick Ryan   of 308
 
Geoffrey,
The reason you may see spreads narrow as the trading session ends
is because market makers "attempt" to limit their exposure to risk and
thus close out positions by day's end. Carrying a position, even
overnight, can be costly if a major event takes place after hours. A
timely example would be the ValuJet crash. Traders can lose their jobs
by not controlling such risk.

Also, because they often narrow spreads on and off during the day, if
you had an order to buy at 19 3/4 on a stock quoting 19 1/2 by 20 at
time of order placement, you should just be patient. As the day draws
on, it's like a game of chicken with the market maker. Are you going to
give in and pay 20 or will he give in a take 19 3/4. Remember, he
doesn't make squat unless a trade occurs. As such, they will more often
than not take most reasonable orders (i.e. not at the bid).

On a stock like INTC or MSFT, your best bet is a limit at the bid/ask or
just a market order. It's extremely lucky if you can shave anything off
on these stocks because the liquidity is already so great.

Regarding the payment for order flow.... well, we have to make money.
Just because this practice takes place doesn't preclude the investor
from getting his due fills. If I route your order to MM#1 or MM#2, why
do you care if I get paid for it or not as long as you get the fill you're
due. If you don't then you have a beef -- no question. I realize not all
firms play the game like they should.

Anyway, that's my 2 cents....I mean 1/8.

RR
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