I've traded 5 accounts with Schwab (not eSchwab) for ten years (and direct access with other/daytrading firms for six)... here are my observations. Schwab now frequently gives you "auto-ex" fills on the first 200 shares, then a slower, manual fill on the remaining order. There is often actually a person involved in the remaining fill, which frequently slows down the fill dramatically. There is no good reason they should be doing this so frequently, except to make more money for themselves. However, in my experience if the market is relatively quiet the fills are often quite good - sometimes, even just as good as direct access (but never as fast). However, in an intraday trend that will often slip you a pretty bad fill on the portion that isn't auto-ex'd. This is where I have a big problem with them, I am convinced that they have discovered a "secret profit center" which MASH runs on the sly.
In (what they deem to be) a fast market (which usually *isn't*), in my experience (which has been quite a number of times), their market-maker MASH resorts to highway robbery-mode. They once filled me 6 points away from the market on a JNPR stop order, and although I sent them 20 minutes of time & sales data (and a tick chart) pointing out the *impossibility* of that being EVEN CLOSE to a fair fill (even with extreme order queing delays as a fair excuse). Three different Schwab managers up the chain argued vehemently that it was an excellent fill and refused to adjust the trade even a nickel (I then fired my Platinum team).
In a *real* fast market, it gets a lot worse. One morning YHOO gapped down over ten points and I was filled *immediately* on (not Schwab) direct access with an ARCA order placed 1/4 point over the offer. Get this, my Schwab market order fill placed within 15 seconds of the open (and the other trade) was filled 16 (yes, SIXTEEN) points up and printed 40 minutes later! That one they admitted was "wrong" and adjusted the fill down 8 points (whoopty doo). I was using a market order in an attempt to shoot to the head of the order queue... but since then I have learned from Schwab people that on the Nasdaq, LIMIT orders are actually processed FASTER, as long as you give them a little room (e.g., place a buy order a little ways over the offer). Listed stock orders work different (another topic for a rainy day:)
I am very slow to warm up to conspiracy theories by nature, and believe that Schwab is one of the more ethical companies out there. However, on their tech stock fills I have become quite convinced that they (perhaps more accurately, MASH - who they own) have stumbled across this foolproof way to profit where they are technically within the rules -- and that they have now turned it into an intentionally-executed profit center. They appear to be doing it consistently & routinely, using the excuse of a supposedly "fast market" to slip in (manually) these unbelievably bad fills with mega-slippage. They are obviously profiting from these by trading against them... why else would the fills be so bad?? It's quite simple: they get the real fill quickly, then close their trade against your order as far away as possible; when it makes sense... otherwise they just assign you the real fill. That kind of easy money must be hard for the brokerages to resist, even to keep their traders from making without permission!
I have talked to my "Platinum" teams at Schwab (fired two of them over this very problem), contacted their "Chairman's office" designate with lengthy documentation and received worthless/arrogant/form letter replies twice. Each time I wrote them extremely detailed (but courteous) letters, backed up by time & sales prints, 1-minute annotated charts, etc. What's more disturbing than their dishonesty is their consistently defiant, hard-nosed attitude that there is no problem with their fills and that no "monkey business" going on, despite overwhelming detailed evidence to the contrary. By being so blatantly dishonest about an acute problem, they are going to end up getting their order-fill business practices micro-analyzed on the front page of the NY Times someday! I'll betcha.
Despite all this, I find Schwab to be one of the best online brokerages... I've traded at most all of them - trust me, it gets worse from here! Since the daytrading firms let the NASD thoroughly screw up their overnight margin requirements/rules (some firms, e.g. Instinet clearing, make it even worse), I favor an online brokerage for many swingtrades in order to not tie up buying power/flexibility needlessly after an overnight. When you want to get very aggressive, why let some stupid, arbitrary "pattern daytrading" rules cut down your buying power?
If a group of us ever were to go after Schwab in an organized, determined fashion I would be the first to sign up and provide plenty of letters, documentation, etc. I am sure at some point in the future they will get their bluff called by a group of sharp securities lawyers with sophisticated clients using detailed records including a comparision against direct access. They will likely end up mailing some large "refund checks" to their entire customer base as part of a settlement. The thing is, most of their customers never realize how badly they are getting hit on many fills, because they don't have direct-access to compare it to. I do, and I have!
Griping to them doesn't help... so my solution to all this was simple - and it works. I *never* use a market order or stop order with Schwab -- I use *Limit* orders EXCLUSIVELY (always - on every order). It is harder for them to cheat on those or to hide behind a (supposedly) fast market as an excuse for gross slippage. You have to get the timing and the order placement (price) right... but they work! It has basically solved the problem for me, for about 6 months now I haven't had a problem. Of course, a high percentage of my trade volume is on direct access, so Schwab is making very little off of me on commission turnovers for the swing trades. I do make very heavy use of all their services, reports, expert option rep's, etc. Their dedicated option team is quite good, with some former Futures-pit option market makers, etc. -- a little-known bright spot about Schwab. And, despite the MASH shenanigans I still believe that Schwab is basically honest, and they make a real effort at pleasing their customers. Plus, Chuck is cool! He has demonstrated that he is better than a Zen-master at calming down the frightened masses... all those frightened buy-and-holders were nearly setting on his lap <g>(re: their latest TV ad campaign with Chuck in the Ampitheatre:)....
Good trading, -Steve |
