Very revealing chat with my broker

Discussion in 'Trading' started by Option Trader, Sep 3, 2008.

  1. (For confidentiality I changed the name of the broker to BROKERAGE___ and used "Broker" instead of his name):

    22:45 Broker.: Hello
    22:45 me: Hello.
    22:47 me: I have another question instead. I noticed I get price improvement often with (YOUR BROKERAGE__) quite consistantly...
    22:48 me: and would like to know if I am able to identify if this comes from a MM who is my counterparty
    22:49 Broker.: you won't be able to identify that, i'm sorry
    22:49 me: Also, when price improvement is offered liberally is that ever an indication you are entering a trade with a low probability of success
    22:50 Broker.: many times you are going to trade with another customer working the opposite order than you.
    22:50 Broker.: either that or some other trader is scanning for good trades,
    22:51 Broker.: and entering a price for the fill that is more competitive than other market makers
    22:51 me: Can another retail trader really offer price improvement?
    22:51 me: Can I?

    Broker misunderstood me & thought I was talking about options. Continued now…

    23:01 Broker.: if the order is working at the exchange, our routing partner may route your order to the ECN network if they choose to improve the price and trade with you out of their inventory
    23:02 me: Is the routing partner a market maker competing with other MM's?
    23:02 Broker.: something like that
    23:03 me: And they tend to offer price improvement when they feel they have a high probability of a winning trade, correct?
    23:03 Broker.: a market maker will generally scalp the asset for pennies, or fractions of a penny.
    23:04 Broker.: they can trade with you out of inventory if they want to redeuce risk, or if they want to increase their position.
    23:06 me: I get the feeling they are short term or intermediate traders, and usually want to increase their position when they feel at very soon the stock will move in their direction, and that very often they are players in making that happen. Agree?
    23:06 Broker.: no comment.
    23:07 Broker.: you are not worse off by someone taking the other side of your trade.
    23:07 Broker.: is there anything else i can help you with?
    23:08 me: If you can just provide me one tip: should I be slightly more cautious if I see I am readily being offered price improvement, correct?
    23:08 Broker.: i can't answer that
    23:08 Broker.: i'm sorry
    23:09 me: Ok, thank you for your time.
    23:09 Broker.: have a great day
    23:09 me: Bye.
  2. Haha, I guess he answered your question.

    Didn't you really suspect this all along anyway?
  3. cvds16


    I don't get it, all the above is obvious to me and so can't say this is a surprise in any way. If this is a surprise for you you must have been very naive. The comment of the broker isn't a surprise either but is pure objective, he probably doesn't know shit. What else did you expect ? All hardly shocking stuff.
  4. Jachyra


    It really doesn't matter at all who is taking the other side of your trade... you're the one making the decision and pushing the button to go either long or short, not the counterparty.... the only thing that should be important to you is that somebody somewhere... anybody anywhere... is willing to sell when you want to buy or buy when you want to sell.
  5. bbqbbq


    yep, when you lose, somebody else wins.

    when you win, somebody else loses.

    brokers always win btw!:p

    since at every trade somebody wins, it's a win-win situation!
  6. mokwit


    There is a fool in every game, and if you don't know who it is then it is you.

    If you get filled on the bid in options or OTC stocks you are the fool.
  7. The first few & the last few responses are contradicting each other, and everyone is sure of himself.
  8. Not true if I am bidding say a eurodollar call ladder and paper bids comes into the higher strikes I can easily get this trade filled on the bid. Just one example
  9. Let's say if a major player like a market maker plans to bring the stock down 10%. You wouldnt tried to sell some shares at the higher price first? My thread is relevant to identifying when that process starts.
  10. mokwit


    Ok fair enough, I should have specified "illiquid" defined as no two way i.e bid and offer buying and selling.
    #10     Sep 3, 2008