Geoff,
It's getting late and I'm certain I won't be able to answer your questions to your satisfaction. But here goes.
RE: Type of orders (mkt,limit, fok)
Answer: You'll hate this answer, but it's the only correct one.
"IT DEPENDS".There are so many variables I consider before I decide on a type of order that I cannot possibly tell you what type of order is best. If it's a NYSE or AMEX stock, the general rule is what you would expect. If the stock is moving or you expect an imminent move, use mkt. If stock is stagnant, use limit. I almost never use FOK.
However, for NASDAQ stocks, it gets a little more complicated because of the way the NASDAQ works and because of the games (tricks) MMs play. Other factors play a part in deciding what type of order is best: how fast can you place your order, how fast does your broker execute orders, what is the stage of your stock - stagnant, breaking out/breaking down, extended, climaxing, gapping open, etc. You get the picture. There is no way I can tell you what is best for NASDAQ stocks without knowing the current situation. Sorry. But if you have access to SOES instant executions, the answer is simple- market orders all the time. Unless you are "SOES Trading". In which case, you want to also use Selectnet. But that's whole another story.
Re: SOES Trading.
SOES trading is sort of an accident for the NASD. They never intended for SOES Trading to be borne when they creadted SOES (Small Order Execution System). The NASD created SOES to force MMs to honor their quotes. SOES is automatic and done by a computer at NASD in Rockville, MD. Before SOES, brokers (dealers) with a customer order called MMs on the telephone to buy or sell NASDAQ stocks after they saw a MM quote on the terminal. However, the MM would frequently not honor the quote. This is called "backing away". Usually if a stock is getting lots of attention,the MM would not honor his quote and simply raise it. This became an increasing problem for the NASD and the system finally broke down on October 19, 1987 (yeah, the big one) when some MMs simply stopped answering their phones as the market was plunging. Many investors, especially small investors, could not get out of their NASDAQ stocks.
After the CRASH, the NASD made the SOES manadatory for all MMs. This forced MMs to honor their quotes because it was done automatically by a computer and not left to the "honor" system of the MMs.
Along with SOES is another NASD system called Selectnet. Together, SOES trading was born. Selectnet allows dealers (brokers) and MMs to "broadcast" their desire to buy or sell a stock at a certain price. However, only MMs can see all of these broadcasts and they only are allowed to accept one of those bids/offers. Harvey Houtkin, the so-called "the original SOES bandit," supposedly was the first to discover that there was a way to profit by using these two systems through expoiting the volatile nature of NASDAQ stocks and the the way they seemed to move.
If anyone has watched NASDAQ stocks, they know that they move in some predictable manner intra-day and that once a stock starts to move, it continues to move at least a little more. As an example, Houtkin discovered that if a stock starts to move up, he can buy at the ask on SOES and offer to sell the same stock on Selectnet to the MMs at a higher price (usually 1/8 or 1/4) as the stock continued upward. The theory is (in case of a rising stock) that a MM that was forced to sell at the ask will be forced to buy it back at a higher price if he thinks that it is going even higher. It's not that simple, but that's the jist of SOES trading.
ams |
