Order routing and market makers

Discussion in 'Order Execution' started by shark, Mar 18, 2010.

  1. shark

    shark

    I'm trying to understand how order routing actually works on exchanges. Can any of you correct me in what I think I know so far:

    -The bid-ask spread is the price at which you can sell/buy instantly to/from a market maker. On highly liquid securities there are several market makers competing with each other. if the spread is wide enough, it's possible to flip the security by buying just over the bid and selling just under the ask.

    -The order que goes completely by price, so I can only sell something if my price is the lowest for a split second.

    -The opening price is an estimate of equilibrium made by the specialist/market maker. It is in the best interest of a market maker to find equilibrium in price, as they profit depending on how many orders they go through.

    Anything else I need to know? Thanks.
     
  2. dont forget the slippage. what market are u referring to?
     
  3.