Good question, and thereis a lot to it. First thing might be to recommend coming to or getting your hands on tonights' chat session. Ross Ditlove from MBTrading will be joining us to discuss such items:
1. As a mm, NAWE wants to make a market on your order. That is, they want to make a spread on the order. They get 30/90 seconds to workyour order before they are required to display the order.
NAWE isno out there to pay order flow and simply display orders. They will try to make that market. You and I might think that 'unfair' but to the mm, its their business.
I dislike any firm that nondiscriminatorily routes to a particular mm. NAWE isa good market maker but not necessarily the best. Will the honor x nmber ofshares to buy at the offer or sell at the bid?If not, then at times, iyou are buying on the offer or selling at the bid, you arenot sure of fill. Perhaps it would have been better to go t the mm bidding, or to a mm who will be comptitive with the inside market for xx number of shares.
Also, ECNS usually are automatic, electronic systems that will reflectyour order instantly. AndMANY mm use ECNS and pass client orders to buy atbid, sell at offer toECN so they dont have to adjusttheir own mm. What does that mean?
Lets say a stock is 10 x 10 1/2. NAWE gets a large order to buy with a 10 1/4 limit. So they start bidding on SNET not changing the inside...why, why would they do this? do not strengthen the stock. MM can see the order, but the rest of the world doesnt see the strength...ie..10 x 10 1/2 is worse than 10 1/4 x 10 1/2. Weaker means better chance of picking up inbetween. (stressing importance of SNET for size)
Regards, lets say they change the market and make it 10 1/4 x 10 1/2, the 1/4 representing the clients order. They could update their quote so THEY are at 10 1/4. They could use an ECN to bid 10 1/4 thinking the ECN would less impact their position or they could route to any other MM...ie could route to GSCO or MASH...why? dont want anyone knowing that NAWE is the buyer, so you daytraders dont key on NAWE.
Lets say you send an order to buy 400 shares at 10 3/8 to NAWE, knowing or not knowing that NAWE has a client order for 10k at 10 1/4. Now NAWE doesnt want to further increase thier image as a buyer, they dont want to send up flares and so if they now went to 10 3/8 to 10 1/2, it might even jeopardize their position to buy the 10k at 10 1/4. They dont want your 10 3/8 for a small 400 upsetting their efforts at 10k at 1/4. So what can they do.....1) they could represent you , changing their quote to 10 3/8..but now its 10 3/8 x 1/2 and NAWE the bidder..less likely 2) they could route you to any other mm but they dont want GSCO at 3/8 bid either, they dont want GSCO's trader knowing that NAWE is buying (even though its only 400)...so they probably route you ANYWAY to ISLD or INCA, so now its ISLD for 400 at 3/8...(everyone says, 'hey, its only isld and isld is daytraders customer orders, nothing special, as soon as they get filled it will step down-which it will) or 3) NAWE might fill you themselves and eat the 1/8 on 400 to totally avoid you upsetting their efforts.
The content above...this is what you need to be thinking about when you want to play the game with marketmakers, firms with large positions, etc.
To answer your question, read Gary Smith's article on finding the perfect broker. If you dont have access to TheStreet.com, email me at steve@yamner.com and I'll get you pieces of it. If you have time to watch your own orders and have the saavy and understanding to trade (not just pick the stocks) but navigate the execution systems, perhaps MBTRADING is your bet. Else, our firm would be ideal.
Webstreet- I dont have a problem with order routing but atleast offer all the execution systems, and dont nondiscriminatorily route to only one firm.
Regards,
Steve@yamner.com |
