Actually........ A specialist performs five essential functions in the specific securities allocated to him/her:. Manage the auction process.. To maintain a fair and orderly market in a particular security, the specialist establishes the opening price for his security every day. Then, during the day, he quotes the current bid and offer prices to brokers Execute orders for floor brokers.. The specialist can execute an order immediately or hold the order and execute it when the stock reaches the specific price requested by the customer. As a dealer, the specialist will buy or sell stock from his own inventory to keep the market liquid or to prevent rapid price changes. Serve as catalysts.. Specialists are the point of contact between brokers with buy and sell orders. The specialist acts as a catalyst, bringing buyers and sellers together enabling a transaction to take place that otherwise would not have occurred. Provide capital. If buy orders temporarily outpace sell orders, or conversely if sell orders outpace buy orders, the specialist is required to use his firm's own capital to minimize the imbalance. This is done by buying or selling against the trend of the market until a price is reached at which public supply and demand are once again in balance. Usually public order meets public order without specialist participation, however, specialists do participate in about 10 percent of all shares traded. Stabilize prices. To ensure that stock trading moves smoothly, with minimal price fluctuation, the specialist will step in against the market trend. Specialists buy and sell stock to cushion temporary imbalances and to avoid unreasonable price variations. Just to add my 2 cents But I do agree with you that moving the stock with fake orders is pure manipulation. The SEC has said they are going to start cracking down on it. However, anyone who has learned to trade from a market depth window, has accepted this form of manipulation as part of the game and probably worked it into their strategy. Point being, if absolutely nobody else follows the rules, why should we?
You are absolutely correct. I meant to exclude those conditions by saying "in normal markets," but I guess normal markets might include those conditions .
Don't forget that a big portion of funds and other institutions use the VWAP type of order to eliminate the need to "work an order". Don
Volume Weighted Average Price. Its a guaranteed fill if you place it by a certain time before the next 'print' I believe.
Rather than rely on some broker's trading expertise, they pay a little more commish to be guaranteed the VWAP for the day. I think the order has to be placed prior to the opening print (don't hold me to that). Sometimes the brokerage firm will be buying and selling the same stock to, either make money on the trades to make up for having to deliver stock at a good price, or to "funnel" pricing. Our traders are instructed on how to use the VWAP on our Redi machines. Don
PS, the specialist is not required to supply liquidity in normal markets. LRP's are designed for the specialist to provide liquidity, as I see it. www.stocktrading.com/hybrid.html (scroll down to see the pricing points, based on stock volume). Don
http://www.stocktrading.com/hybrid.htm I just tried it, perhaps I typed it incorrectly last time. This is a direct cut and paste. Don