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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: August who wrote (4570)	10/2/1999 8:18:00 PM
From: -	Read Replies (2) \| Respond to of 18137

August, I don't want to go digging through all the posts to find that stuff for you (too much on-line time today already, and relatives on their way over ;) but ARCA is excellent for building large positions. Say you want to buy WXYZ and it is getting hammered down a little on an intraday pullback, trading 17 3/4 by 17 15/16. There are shares coming across the tape both sides of the market but the momentum has been downward (and is about to turn up). At that momement you'd stick in an ARCA bid in for 10,000 shares at 17 3/4 or 17 13/16. It will just set there persistently and suck them down as your bid gets hit by sellers. Theoretically you can do that with ISLD, but I find that in reality the ISLD order will cancel after they hit you with the first lot or two (then, you get into re-entering the order, and multiple commissions). ARCA, on the other hand, goes out and aggressively works different Selectnet order modes for you to get your entire order filled. So often on ISLD you'll end up with cancellation of the order after a partial fill, and multiple tickets. Nowadays, though with the excellent visibility into the ISLD book, you can usually get the job done on ISLD by viewing the book then placing the order properly, which is generally much faster. Hope that helps, -Steve

To: August who wrote (4570)	10/2/1999 8:32:00 PM
From: Eric P	Read Replies (1) \| Respond to of 18137

August: Following information may help you better understand the ARCA order routing system. The ARCA Order Routing System - Explained Sophisticated order routing systems were designed to help traders more quickly and efficiently access the SelectNet and ECN systems. These systems are not widely available, but can be very useful for traders that have access to this technology. Some direct access daytrading brokers such as The Executioner (http://www.executioner.com) offer the sophisticated ARCA order routing system to automatically route your order in a manner to maximize the likelihood of getting shares executed. This is a very fast and complex system designed to relieve the trader from the very urgent task of proper order routing and is especially valuable for larger orders that need to be broken down into smaller pieces for execution. Note: ARCA has dual function of serving as an ECN and a sophisticated order routing system. Some trading firms offer just the ECN capabilities of ARCA, while failing to offer the sophisticated order routing capabilities of this indispensable system. When shopping for a direct access trading system, make sure you are dealing with one that offers posting capabilities (ECN) and order routing functions. Only then will you truly have access to the same tool used by many large institutions. First, let's review how this complex routing system works, then I'll further clarify this process with an example. The ARCA order routing system uses the following priority for processing and executing your order: => First, it checks for internal matches on the book of the ARCA ECN. => The second priority is to check for any matching orders found on the other ECNs. => Next, it will check the availability of market makers and prioritize them based on their price and size. => Finally, any remaining shares on your order will be evenly distributed among the market makers already identified. This complex process is more easily understood with an example. Let's assume that a trader wants to buy 5000 shares of INTC at the inside ask price of 80. Let's further assume that the posted offers on the Level II display are as follows: 1 ----- GSCO ---------- 80 10 ---- MLCO --------- 80 14 ---- ISLD ---------- 80 4 ---- ARCA ---------- 80 3 ---- MSCO ---------- 80 4 ---- REDI ----------- 80 1/16 1 ---- HRZG ---------- 80 1/8 10 ---- NITE ---------- 80 1/8 As you can see, there are only 3200 shares posted at the inside ask price of 80, versus the order size of 5000 shares. Going through the above prioritizing process yields the following: 1) A 400 share order will go to ARCA . 2) A 1400 share order will go out to ISLD. 3) The market makers GSCO (100 shares), MLCO (1000 shares) and MSCO (300 shares) will each receive a preferenced SNET order. 4) Since an additional 1800 shares need to be allocated from the 5000 share order, these remaining shares will be evenly distributed among the three available market makers at that price (600 additional shares each). As a result, the following orders will be instantaneously generated by the ARCA order routing system and routed for immediate execution: Buy 400 shares from ARCA at 80 directly off the ARCA book Buy 1400 shares from ISLD at 80 using direct ISLD connection Buy 700 shares (i.e. 100 + 600) from GSCO at 80 using SNET Buy 1600 shares (i.e. 1000 + 600) from MLCO at 80 using SNET Buy 900 shares (i.e. 300 + 600) from MSCO at 80 using SNET In this way, the order routing system very quickly and efficiency processes and routes your order for ultimate execution. If any of these orders are rejected or not fully filled, the system will automatically re-route the remaining unfilled shares to other available market makers or ECNs that are still available at that price. Finally, when there are no market makers or ECNs left at the desired price willing to fill an order, the remaining unfilled shares will be posted on the ARCA ECN limit order book and displayed on Nasdaq Level II as an ARCA# bid at a price of $80/share. ARCA Advantages => Allows the trader to quickly place orders to the æbest' possible ECNs and market makers at that time. => Allows the trader to fill a large order quickly with multiple partial fills from several different ECNs and market makers, while only being charged a single commission. => Can be an effective way to get an order filled in a quickly rising market. ARCA Disadvantages =>If a market maker chooses to ignore a SNET preferenced order generated by the ARCA system, the order will remain active for 30 seconds before it is automatically canceled and re-routed. This can be a very long time in an active market. How an Experienced Trader Uses ARCA The experienced trader understands this order routing technology and realizes that it is capable of making excellent decisions and place orders more quickly than is manually possible. As a result, the he/she finds many situations for using this technology: => The ARCA order routing system is especially useful for placing larger orders that need to be broken down into smaller pieces for execution. => The ARCA order routing system can be very useful in fast moving markets by placing buy (sell) orders several levels higher (lower) than the inside ask (bid). The system is able to quickly re-route orders to second and third options subsequent to being rejected on any of the initial fill attempts. => ARCA order routing can be successfully used by less experienced traders, who may need help to quickly and efficiently place the most appropriate order among the wide variety of options. Note: This is an excerpt from the upcoming book by Pristine.com entitled "The Electronic Day Trader's Edge," written by Oliver L. Velez and Greg Capra, to be published this fall by McGraw-Hill. Reprint by permission of Pristine.com

To: August who wrote (4570)	10/2/1999 8:38:00 PM
From: Matthew L. Jones	Read Replies (1) \| Respond to of 18137

Although not invited, I will respond to the question... I hope you don't mind. ARCA is a priceless tool for getting out of a trade quick when you have overstayed your position. If you use SOES it may take 4 or 5 different trades and the MM's may very well back away if the market is moving against you (typically lifting bids or offers and essentially screwing you "fair and square". Daytraders are who use ISLD by and large and so ISLD bids and offers have a tendency to disappear when you need them the most (not to mention partial fills that are typical on ISLD). ARCA is an electronic selectnet execution engine that works much faster than even the fastest traders and you can bail out of a bad trade quick (15-30 seconds) if used properly and often the ARCA system will have made as many as a dozen partials on your behalf with only one click and only one ticket. Some people don't like it because they are used to the instant execution using ISLD, however for exiting in a fast market with size there is no ECN that is better because ARCA accesses all other ECNs and MM's to get your fill. On everyone's system except MB (I think) it costs an extra 1.5 cents per share premium, however. All I can say is I wish I had had it this past Christmas Eve. I turned a $750 winner into a $15,000 loser trying to get out of Sky Mall in a fast dropping market and watched as ECN's were not there or lifing bids faster than I could place orders and MM's were not responding to SOES or Selectnet preferencing because "they were light staffed for the holiday and the market was too fast" (Ha Ha). If I'd have had ARCA, I'd have broken even worst case. Matt