EATING The Spread

Discussion in 'Order Execution' started by Lobster, Nov 28, 2002.

  1. I would like to BRAG about my software and ADVERTISE here, but I'm not that kind of a person, so I will just forgo this opportunity.

    Now let's get to what this thread is really intended to be about:

    Does anyone here use only market (or marketable) orders and make consistent money?

    I believe with a small tick size (like a penny for stocks) this should be possible, and I would like to know if anyone is actually practicing it.
  2. No.
  3. Thanks for answering the question. This thread may now be filed in the archives.
  4. That's one thing that consistently ANGERS me about NYSE, on anything that does less than 10mil per day, and especially on the popular daytrader stocks.

    There's no more liquidity for small lots than there are for blocks - why the F^CK should I get the same pricing (in terms of the spread and liquidity) for orders less than 1100sh that 5k and 10k lots get?? You may think I'm wrong, but this is something I see constantly on NYSE.

    Yes, you have to pay the piper (specialist) so he can bleed money out of the market for his firm, and one of the main ways he does this is by sweeping stock into blocks constantly so he can keep the spread artificially wider and make more money off of the order flow. (He will make much more money by sweeping the orders into blocks - which is why the fabled "price improvement" with NYSE has existed and always will exist).

    Having to pay the piper (as a small lot trader) constantly on the NYSE makes being profitable more difficult, in my opinion, than on the naz. Yeah, you get the benefit of being able to trade with the specialist and use that information, but it's not like it's not going to cost you...

    Think about this hypothetical situation - ABC is trading at 50.00 x 50.02 (ignore the size of the B/A; it doesn't matter for this example). Say the spec gets five buy orders for 2,000sh each, in a rising market in which he's acting as principal (in other words, the 10k shares total is coming from him and not from anybody else).

    Imagine two possible scenarios in this situation - he can either sell 5 lots of 2,000sh each .02 up for each lot - in other words, the prints might look like this -

    Situation 1- he prints the 5 orders for 2,000sh each separately-

    2,000sh sell @ 50.02
    2,000sh sell @ 50.04
    2,000sh sell @ 50.06
    2,000sh sell @ 50.08
    2,000sh sell @ 50.10

    His net selling price for those 10,000sh is going to be 50.06 in this scenario.

    Situation 2- now imagine if he stalls for 5 seconds, aggregates the five 2,000sh orders into one block and prints them all at the same time (aka sweeping the book) -

    10,000sh sell at 50.10

    His net selling price for those 10,000sh is going to be 50.10.

    By sweeping the book (second example above) he made an extra $400!!!

    THIS is the kinda sh!t that pisses me off about NYSE. As a smaller customer, I got a considerably worse price for my 2,000sh buy order than I really deserved.