Stocks definately have short term direction. For trading purposes, that is determining which stocks we might buy or sell, its important, a little less important for simply executing one side of a client transaction, but nonetheless important. Its not absolute, not something you can draw a perfect line through, but we are intensely paying attention to the overall market, the bond market, industry leaders, cash flow, then we focus in on the particular stock the client might be buying/selling, the market participants, the action and prints, the movement in bid/offer relative to the prints, etc.
This gives us a feel for the stock and thus lets us give some advice, guidance to the client as the best way to execute, ...ie...
"yeah, Tom, there are 8 offers at 10 1/4, 2 bidders at 10 1/8, market is getting a bit weaker here and the bond markets tanking, i would expect the market to sell off a bit here following the futures in next 20, 30 minutes, so why dont we try this, lets setup soes at 10 1/4, if I lose any more than 3 of the offers at 10 1/4, we'll buy it at 1/4, meanwhile, let me bid inbetween or try to get better".
Again, nothing is absolute. the volatility of the market, the stock , the size of the order, the client all factor in. Sometimes, there is no per se market price improvement but just guidance or advice..
An example..yesterday I got call from client early who wanted that HCOM?. To be honest, never had heard of it, but was obviously aware of the wild action in internet stocks. Client wanted 200 shares. Within a second, we had it up on the L2 screen...the stock was absolutely flying. This was early in the day, before CNBC started jabbering about all these internet flyers. Now the client is not the most experienced trader, doesnt hvae the time or technology to watch L2 all the time and doesnt rely on his L2 100%. He simply gave an order to buy 200 shares of this thing at the market. First, tell me how many of you would give Etrade or Egrp that order without worry about the quality of execution. At the time the stock was 9 3/4ish and moving strongly higher. We instantly had the order on SOES to buy and as well instantly dialed up a large market maker who was popping up on offer. Unfortunately, SOES was a joke, the cue was tremendous. About 10 seconds of no response from SOES, as ever SOES trader out there was going after the one mm offering. Meanwhile we had the market maker firm on the phone, doing a little humming and hawing just to give SOES a few more seconds and then instantly cancelled the SOES order and now that we had the mm on the phone, they couldnt back away, no cue, the trade was done at 9 7/8. Sure this was 3/4 above the current market and the client if totally inexperienced could, 'geez, what the hell happened, it was 3/4 when I went it', but we all know that 9 7/8 was a great exectuion because hardly anystock was getting bot at 3/4 because that mm was holdingup the works getting ready to move higher. The 9 7/8 print was a great one because by the time I had hung the phone up with the mm, the stock wasup about 3/8 from there.
So, in this case, no price improvement, yet I would argue a great execution, perhaps referred to as protecting the order. Anyway, things you dont get elsewhere....The stock flew, we all saw what happened yesterday...I call the client, around 11am and tell him that the stock has done, "ok" - lol, its current 17 1/2...wow! I suggested to him that this sort of things is an abberation and that he should someone hedge and protect these gains. We put in a stop order at 16.
I hang up the phone. About 5 minutes later, we work full tilt, the same as going in, to execute the trade at 16. About 5 minutes after that I call him back and give him a sell report, sold 200 at 16. Where's the stock? 16.
Now I take absolutely no credit for any of the action in the stock, the daring to purchase it, and in fact the stock could be 30 (although I dont think it will) in 2 weeks and the 16 stop would be a miss. Nonetheless, from experience, knowing our client owned this horse, we felt the client should atleast be called and given some guidance, feedback. We dont make the market, we didnt underwrite it, we just want to see the client do 100% great.
Again, its not rocket science, just a matter of motivation and lack of contra-motivations. No price improvements on any of the pieces, but I would argue a quality execution, service just not found in many places on the Street. Most would rather do the trades for $9.99 andmake the market.
Regards,
Steve@yamner.com
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