He is disclosing, (as he must, according to SEC rules) that he "may" receive payment for order flow. He is also telling you to check your written confirmations, where a code is usually appended to each trade, showing you whether they acted as "principal" in the trade, or in "agency." It should also tell you whether they received payment for that order.
Principal means that you either bought the shares from, or sold the shares to, them (or the MM they received payment from). Agency means they acted as your agent, merely facilitating the trade for you. Agency is what ALL your trades should be done as, if you want to be sure of your broker's complete independence. However, nowadays, it is quite hard to find a broker who doesn't sell their order flow. That's how so many can charge such low commissions. But there are a number of them that don't.
Depending on your trading style, and your individual needs, you need to decide which is best for you. For some people, they don't mind that their broker makes a little extra, maybe because they don't want to bother looking for another broker, gets fast executions, great customer service, etc. If that's the case, you have to remember that market orders with these brokers is basically a license to steal, as you will never get the best price, no matter what they tell you. Limit orders gives you some protection from being raped, but in those cases, you may not get filled at all, if the MM doesn't feel like it, and can get away with it.
However, if you want the best possible executions, then you go to a broker that guarantees that they never receive payment for order flow. There are some electronic firms that claim not to, and there are other phone based brokers who claim the same. For instance, Yamner and Company claims to actually "work" your order to try to get price improvement. Their head trader, Steve Goldman, has a thread here on SI, called "From the trading desk." Check it out. (I have no experience with them, so I can't advise, but others on the thread have.) I'm not shilling for the company, but I guess I am shilling for the thread,<g> since he imparts a lot of good information that is independent of his company. Discussions of the markets, order flow, and lots of other good information can be found there.
Hope this helps. |
