Isn't it true that Nasdaq MMs can see all stops in place and regularly take out those stops to get cheap shares?
Hi John,
The answer to your question is both yes and know. MM's can see, to a certain degree, how many unfilled limit orders are waiting to be filled for any given security. They can also see the size and price of each individual order. That info is seen primarily via the ISLD electronic limit order book as well as the INCA limit order book. These books show the pending bids and offers they have for any security, and since they are by far the two most active ECN's, they give a fairly good representation of where people want to buy and sell stocks at. For example, let's say that a stock is trading at 10 x 10 1/8 and you have decided that you'll buy it when it dips to 9 1/2. If you immediately placed a limit order through a broker such as Datek that uses the Island ECN, any MM (or anyone else with an Island terminal) will be able to see your order sitting there at 9 1/2 even though the stock is still currently at 10 x 10 1/8.
Like I said before, that applies only to unfilled limit orders. However, that's not to be confused with stop orders. A Stop Order is a service that's provided by your broker and that's why day trading firms like MB Trading don't provide them while other firms like Datek do. Stop orders can be limit or market, and they aren't entered into the market until the stop price you specify is reached. Let's look at the same example but instead let's say you want to place a buy stop limit order to buy the stock when it hits 10 1/2. Even though you might send the order to your broker well before the stock ever hits 10 1/2, it's never entered into the market by your broker's computer system until the ask price reaches your stop price, which in this case was 10 1/2. So on stop orders, there is no way for the MMs to see them ahead of time because they aren't entered into the market until the stock reaches the stop price where they can be filled immediately.
Hope this helps,
Baron Robertson
Editor and Publisher
Elite Trader
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