SPY vrs ES (sub penny) Question

Discussion in 'ETFs' started by MoonlightGraham, Oct 13, 2010.

  1. Hello all,

    Recently I have become interested in adding the SPY to my trading plan. For a long time I have only studied and traded the ES. As I started to compare my approach of the ES to the SPY charts I noticed that my method is transferable (seems obvious I know).

    Anyways, I have noticed that the SPY offers some advantages that the ES does not, in the way of fractions of a penny. As you know, on the ES the only way to guarantee you will be executed at 375 (on a sell order) is if the market trades 400.

    My question then is, if the inside market on the SPY (whole pennies now) is, say 115.10 X 115.11, can 115.11 price trade while 115.105 remains? Or do all the shares in between need to be executed before the whole penny trades?

    Thanks in advance,

  2. bump
  3. SPY doesn't quote in half penny increments. so, your question is a little off.

    could there be midpoint pegs or broker internalizations going on that would cause a half penny print? yes.

    will these need to clear before hitting your round? not necessarily.

    due to the fragmentation of the equities market, and due to the fact that the sub-penny prices are not quoted, they can and are continually traded through depending on the route you choose.
  4. Thank you Propseeker, I have not watched the level 2 of the SPY only see on my charts that some price bars open or close at fraction of a penny. So I was not sure if sub penny trading was part of the game on the SPY.

  5. chartman


    Sub-penny trading is only available for insiders unless your broker executes your order away from the exchanges. Internalization is common for equities trading. Penny increments trading cannot be placed by the public. This is the sole domain of the insiders. Fragmentation of trading instead of a centralized marketplace is a major problem for price discovery and transparency. Now as to your question concerning as to whether all shares have to be executed at any particular price before prices can be executed at a higher price. The answer is a resounding NO. In reality there is no such thing as NBBO. I have sit for hours with the best bid/ask and watch trades being reported as much as a nickel worse than my quoted price.
    The rules require brokers to 'try' and execute public orders at the best prevailing price but it is not enforced. The public is being sucker punched thousands of times each day by brokers as the regulators turn a blind eye. If you are trading futures and are familiar with the ES market and currently trading profitably, my advice would to continue trading the ES. At least you have a centralized market with transparency and true price discovery where the market cannot trade away from your best quotes.
    Retail traders by the thousands are leaving the equities markets due to the unfairness of executions. It will eventually be only the insiders trying to cheat each other as trading volume nosedives. You cannot depend on the regulators to come to the rescue. It is a revolving door for personnel between the regulators and the big Wall Street firms.
  6. pookie


    Wow...that's an eye opener. :eek:
    Thanks for posting, chartman.
  7. Thanks for the information Chartman, but it seems you are describing individual equities that may or may not be thick? I would be so frustrated if I was offered out in a stock and started seeing prints go off at higher prices without getting an execution.

    This is why I am only interested in the SPY, I understand the sub penny situation now, I just hope that trades don't go off a full penny above my offer since it's a highly liquid mkt.

  8. jd7419


    Excellent factual info on why internalization is bad, this and many other letters like this should be sent to the sec and the media. I also concur that futures is where all frustrated stock traders should go. Having one order book with the same rules for all doesnt allow the same shit that happens in stocks.
  9. chartman


    Since you are new to equities trading you probably need to be aware of the three P's of equities trading. A majority of traders who have been trading for years, and most of the retail stockbrokers, do not know of this procedural method of order placement in the queue. The P's are: p=price, p=priority, and p= precedence. Of course price equals the best current price on the bid/offer. Priority equals the time of placement of the order and precedence equals the size, number of shares, of the order. You can be the first as far priority and offering the best price but never get an execution due to precedence if orders being placed later are larger than your size. In other words, if your order is for 100 shares and other orders are for 200 or greater shares, they will get executed ahead of you. The market can move away from you while you are waiting even though you were actually first with the best current price. Since this important tid bit of market trading is not on the Series 7, as I have stated, most retail brokers do not know about it. When customers complains about missing the market, the broker will call the order desk and get the canned reply of 'orders being ahead' of yours. They do not know why and the customer never really knows.
  10. Chartman,

    I'm not saying you are wrong, just that I was unaware of what you are claiming... that larger orders get executed ahead of smaller ones (and I thought I had read up pretty thoroughly on the topic!).

    Can you point me to some info on the web from either NYSE (or ARCA), AMEX, or NASDAQ, etc that backs up your claim?

    #10     Oct 19, 2010