Hi Everyone. I have read in a article that market marker(MM) could hold an order confirmation for upto 5 mins. Is this correct ? If that being the case, do u guys send orders to MMs when daytrading ? Or do u use only the ECNs ? Finally, is there any benefit to send order thru' SOES ? Thanks !
Market makers can hold your order and choose whether to fill it or not. I think the delay is in them actually considering whether to execute it, rather than confirm the execution. That is why I rarely use Market makers to execute against. Fortunately I trade very liquid stocks, where there is almost always an ECN at or near the inside quote. SOES in its current form isn't that terrific either, although the long delayed SuperSOES system is supposed to remedy some of the problems executing against MM's.
MMs have 30 seconds to either fill your order or decline and move their market. Unless their liability is already exhausted when they receive your order they have to fill you. I get great fills from MMs all the time, you just have to know in which situations it is better to pay up for an ECN execution instead. There seem to be a lot of people that refuse to trade with MMs and believe and spread the myth that you will only get bad fills from them. From my daily experience that's ridiculous and probably evidence of a lack of execution skills on their part, but I'm the last person to mind less competition for liquidity. Situations where you may want to avoid dealing with MMs are fast markets if you need to get in or out fast. SOES can be very useful as well under the right circumstances. If your first in the queue executions are instantaneous. There's a 17 seconds interval delay between executions, though, so like SNet to MMs you should avoid using it in fast markets.
Just to clarify, RE: SOES...the 17 second interval delay between applys to each MM who is "SOESable" ie all MM's at the inside price level. So if there were 6 MMs at the inside offer showing 500 shares each, and 6separate SOES buy orders came in, all 6 would be filled in an instant, and then each of the 6 MM's would be in interval delay for 17 seconds. I also find SOES to be very useful in the right circumstances. However I almost always enter a limit price away from the inside since all SOES orders are filled at the inside price-whatever that is when my order is next in the queue. SO if a stock is offered at $50, and I am not convinced I would be early enough in the queue, I will enter the SOES buy at $50.15 or what ever (depending how bad I want it. If my order is up while there are still MM's offering at $50...I get filled at $50. If the last MM pulls and the new inside offer becomes $50.03 and my order comes up, I get filled at $50.03 and so on. The obvious benefit is that, with a SOES limit at the current inside price, if the last MM pulls before my order is up, my order is killed and I lose my place in line, while the limit outside the inside stays "live" and keeps my place in line. Many new traders mistakenly think that a SOES limit has to be at the inside price at the time the order is entered.
I have found soes to be useless. On most of the things I would trade, there is only tier 1, and If you want 5k shares, you'll be there an hour before you're filled. It's much better to just keep sweeping ecn's, unless you can figure out which mm is selling, and just snet him.
Praetorian, WHen you say only tier 1, what do you mean? A thin inside price level? THe Soes Tier limit is 1000 shares (vs 200 or 500)? Just curious. Also, what trading platform do you use and do you have an automated ECN sweep, or do you have to do it manually? Agreed that is you are trying to accumulate a sizable positiion rather quickly (ie 5000 shares) then SOES is worthless.