Sorry Irby, didn't mean to throw in any macro concepts just felt that an overall feel for the market is important for trading as well. After all, it is easier to make money in an up market than a down one.
Trading oddities, Technical issues:
I mentioned the first one earlier on the thread butI don't think I ever said anything about the second:
On SOES market orders, if any of the ECNs (ISLD, INCA, BTRD, TNTO, etc) improve the inside market, that is the stock was bid 88 1/2 offered at 88 3/4, by one firm abcd, and an ECN goes to 88 5/8 offered, this will kill all open Soes market orders. How would a Soes market order still by open, why wouldn't it be filled instantaneously? Most likely it is the que of orders and your place in the que.
Afterall, when the market started rallying yesterday, your order (not you per se irby) was not the only order to buy dell. Just about everbody and their brother wanted to own the stock. Yet the market maker abcd at 88 3/4 offering gets hit on soes and he gets time to evaluate the market before having to update his quote. He can still be the low offer at 88 3/4, even with the stock running. He can slow it up and stay there selling stock all he wants and does not have to move until he is done selling. They can bring the bid up to 88 11/16 but the other market makers can not bring their bid above 88 11/16 or this would be considered locking the market, and if above 88 3/4, cross the market. Illegal. It happens but its a violation.
Somewhere in here you might start seeing prints at 88 7/8 even though it is 88 3/4 since buyers know this is going on and know that they will be sitting in a long line toget stock at 88 3/4 from abcd. I could call abcd and try to get a phone based trade, he might say" sorry, you're late, just sold stock to mmmm firm" or "sorry, just got hit on soes". This means he is not exposed to HAVING TO do stock at that price. He is not backing away because he did stock but he gets 20 seconds or so to evaluate his position. Its not shit or get off the pot, its shit, take 20 seconds to evaluate and then get off.
In those 20 seconds, while it is offered there and looks like you should be getting an execution from your firm, you might not be.
Point one. YOu can see how a market maker can holdup a stock which is about to run. One thing this does is allows the firm and all other mm;s and third mms to take in market sell orders at the lower bid. Remember, the mms can't lock the market, and withthe stock being help up, they can take stockin at the bid. A market order to sell is usually filled at the current bid. These firms fill themarket sells left and right seeing the stock being held up and knowing as soon as they get abcd off the offer, they can run the stock, loaded up with inventory they just acquired at the bid.
Point two. Lets say you are in with a soes order to buy 1000 dell at the market. We just talked about why you might not be getting filled, the que, the delay. What happens if someone with ECN access (which just about every firm has as well as many clients whose firms route to ISLD, etc) sees the stock being held up and wants out. person puts in a sell order at 88 5/8, improving the insidemarket, remember it was 88 1/2 88 3/4. its now 88 1/2 88 5/8, offered by ISLD.
ISLD and the ECNs are not SOES eligible. Ifyou were using soes you would not get this better price or filled at all. The only few ways to get this is to change your SOES order and Selectnet preference ISLD, to call ISLD or to be on the ISLD system and enter a buy at 88 5/8. Remember ,you would be the first with the buy since if there was a 88 5/8 bid the market would have been 88 5/8 88 3/4.
More importantly, upon an ECN improving the sell side, going to 88 5/8, ALL OPEN MARKET SOES ORDERS ARE KILLEDOFF THE SYSTEM. The nasdaq system rejects the order as there isnow now soes eligible firm offering. What if someone selectnets the ISLD for the 88 5/8 stock and then it immediately in 1/2 second goes back to 88 3/4. Your order is dead. YOU HAVE TO REENTER IT, IF YOU WERE USING SOES.
For firms that route orders and marketmarkets, etc. don't sweat it. You are still on their books trying to buy it at the market. But for the SOES traders, your order got killed in the 1/2 second that ISLD was there and then wasnt.
Another point: ISlD does not handle partial fills. That is, ifyou put in 1000 to sell at 88 5/8, and some smart mm trader wants to get you out of there so they can sell to their clients at 1/8 higher, they can buy stock , 2 shares from you at 88 5/8. Your isld order cancels the balance. You get filled on 2 shares and you have to go and reenter the 998 shares. Meanwhile, the market moved backup to 88 3/4 and the firm can sell shares to their clients at 88 3/4. Remember, they want to sell at thehighest price possible and buying your 2 shares gets you off thebid without much cost to them, 2 shares.
3rd Point about displayed orders. New order manning rules and ECN rules require that when you giveyou firm an order that improves the inside market, they have 30 seconds to try to make a spread, workthe order and if not, theymust display your order or route it to an ecn that will display your order. So you give Paine Webber your order to buy 1000 dell at 88 5/8 when its 1/2 3/4. They get 30 seconds to try to get it at 1/2 and fill you at 5/8 for 1/8 point profit to them. After 30 seconds they must display their your bid, it should now become 88 5/8 3/4, your bid.
You might be saying, who cares? I don't use ISLD, I use Eschwab or someone else, what difference does it mean to me? Its important because ISLD adn the ECNs in total, while not a 'mm' firm, are a huge percentage of overall nasdaq trades. I think someone said they were like 10% of the overal business or like 25% of all day trades. I am not validating them, (you all know my hardline stance on these types of market making firms, or firms that limit the type of executions they utilize) I am just saying that they are big players inthe otc market. As head trader for thefirm, I am consistently blown away by the crap I see.
Again, for those who simply trade on intuition and care less about technical skills, the data, market operations, I apologize for the long verbose posting. Nonetheless, there are the rules of the game, the tricks that the biggest firms utilize, some legal, some illegal and it is important to know what the other participants in this game are doing, regardless of your modis operandi.
Regards
steve@yamner.com |
