Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@bellsouth.net>
Subject: Re: [CANSLIM] RINO and general execution of trades
Date: Wed, 23 Oct 2002 06:55:17 -0400
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You are correct, David, payment for order flow is legal and a long =
standing practice. But even before decimalization, the MM never gave as =
much as half the spread for order flow, typical was 2 to 4 cents when =
spreads were an eighth to a quarter point. Most firms, NITE included, =
cut the amount they paid on order flow as spreads began to tighten. When =
I ran a trading desk for a Broker Dealer, I did all our Naz trades with =
NITE and got consistent and rapid execution. I monitored the quotes as I =
got execution, and often was done better than the bid or offer, and =
could listen to the dialogue between the person I was speaking with and =
his trader. I rarely needed to challenge their execution prices because =
I could see if the market was moving, and see every execution going off =
at the same time.
But this still would not permit execution over the best offer, which is =
what it sounds like happened in this case.
- ----- Original Message -----=20
From: David Taggart=20
To: canslim@lists.xmission.com=20
Sent: Wednesday, October 23, 2002 2:21 AM
Subject: RE: [CANSLIM] RINO and general execution of trades
A lot of online brokers use market maker firms and get what is called =
payment for order flow. Basically the market maker is guaranteed the =
spread that is one of the main reasons a lot of the online brokers did =
and some still do charge extra for limit orders. It does not cost them =
extra out of pocket to do a limit order but it does cost payment for =
order flow. Check out NITE they were and are one of the biggest MM =
firms and you can see what decimalization and less online trading has =
done to their stock price. Decimals killed a lot of MM firms that =
didn't know how to trade but took order flow instead because when you =
used to get anywhere from a 1/16th to 1/4th each trade and now you get a =
lot of $.01 and $.02 spreads the money just isn't there like it used to =
be. Anybody that used to scalp for 1/8th and 1/4th know that the scalp =
game left town last year with the decimals. But returning to the reason =
for the post Yes, brokers use payment for order flow to get more money. =
That is one of the biggest selling points of direct access brokerage =
firms you trade with whatever route you want.
Happy Trading,
David Taggart
- -----Original Message-----
From: owner-canslim@lists.xmission.com =
[mailto:owner-canslim@lists.xmission.com] On Behalf Of Tom Worley
Sent: Tuesday, October 22, 2002 9:24 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] RINO and general execution of trades
I believe this would be entirely illegal, and likely to cause the Broker =
Dealer to quickly go out of business, altho by then likely wouldn't have =
any customers left anyway.
- ----- Original Message -----=20
From: Chazmoore@aol.com=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, October 22, 2002 4:31 PM
Subject: Re: [CANSLIM] RINO and general execution of trades
Buck: Excellent question. I have found myself in similar situations and =
have wondered how I was taken. Maybe some of the insiders on the board =
will venture a guess. Here is my guess.=20
If you are dealing through a discount broker and are enjoying some of =
the $7.00 or $10.00 transaction costs, it is possible your broker has a =
deal with a market maker wherein you pay at the highest bid while your =
broker buys at a lower price and splits the difference with the market =
maker. I have been told this is how some discount brokers can provide =
such low acquisition costs. Anyone know for sure?=20
Charley=20
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<DIV><FONT face=3DArial>You are correct, David, payment for order flow =
is legal=20
and a long standing practice. But even before decimalization, the MM =
never gave=20
as much as half the spread for order flow, typical was 2 to 4 cents when =
spreads=20
were an eighth to a quarter point. Most firms, NITE included, cut the =
amount=20
they paid on order flow as spreads began to tighten. When I ran a =
trading desk=20
for a Broker Dealer, I did all our Naz trades with NITE and got =
consistent and=20
rapid execution. I monitored the quotes as I got execution, and often =
was done=20
better than the bid or offer, and could listen to the dialogue between =
the=20
person I was speaking with and his trader. I rarely needed to challenge =
their=20
execution prices because I could see if the market was moving, and see =
every=20
execution going off at the same time.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>But this still would not permit execution over =
the best=20
offer, which is what it sounds like happened in this case.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Ddctag@mavericktrading.com =
href=3D"mailto:dctag@mavericktrading.com">David=20
Taggart</A> </DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Wednesday, October 23, 2002 2:21 AM</DIV>
<DIV><B>Subject:</B> RE: [CANSLIM] RINO and general execution of=20
trades</DIV></DIV>
<DIV><BR></DIV>
<DIV class=3DSection1>
<P class=3DMsoNormal><FONT face=3DArial color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial">A lot of =
online brokers=20
use market maker firms and get what is called payment for order =
flow. =20
Basically the market maker is guaranteed the spread that is one of the =
main=20
reasons a lot of the online brokers did and some still do charge extra =
for limit=20
orders. It does not cost them extra out of pocket to do a limit =
order but=20
it does cost payment for order flow. Check out NITE they =
were and=20
are one of the biggest MM firms and you can see what decimalization and =
less=20
online trading has done to their stock price. Decimals killed a =
lot of MM=20
firms that didn=92t know how to trade but took order flow instead =
because when you=20
used to get anywhere from a 1/16<SUP>th</SUP> to 1/4<SUP>th</SUP> each =
trade and=20
now you get a lot of $.01 and $.02 spreads the money just isn=92t there =
like it=20
used to be. Anybody that used to scalp for 1/8<SUP>th</SUP> and=20
1/4<SUP>th</SUP> know that the scalp game left town last year with the=20
decimals. But returning to the reason for the post Yes, brokers =
use=20
payment for order flow to get more money. That is one of the =
biggest=20
selling points of direct access brokerage firms you trade with whatever =
route=20
you want.</SPAN></FONT></P>
<P class=3DMsoNormal><FONT face=3DArial color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: =
Arial"></SPAN></FONT> </P>
<P class=3DMsoNormal><FONT face=3DArial color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial">Happy=20
Trading,</SPAN></FONT></P>
<P class=3DMsoNormal><FONT face=3DArial color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: Arial">David=20
Taggart</SPAN></FONT></P>
<P class=3DMsoNormal><FONT face=3DArial color=3Dnavy size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; COLOR: navy; FONT-FAMILY: =
Arial"></SPAN></FONT> </P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DTahoma =
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Tahoma">-----Original=20
Message-----<BR><B><SPAN style=3D"FONT-WEIGHT: bold">From:</SPAN></B>=20
owner-canslim@lists.xmission.com =
[mailto:owner-canslim@lists.xmission.com]=20
<B><SPAN style=3D"FONT-WEIGHT: bold">On Behalf Of </SPAN></B>Tom=20
Worley<BR><B><SPAN style=3D"FONT-WEIGHT: bold">Sent:</SPAN></B> Tuesday, =
October=20
22, 2002 9:24 PM<BR><B><SPAN style=3D"FONT-WEIGHT: bold">To:</SPAN></B>=20
canslim@lists.xmission.com<BR><B><SPAN=20
style=3D"FONT-WEIGHT: bold">Subject:</SPAN></B> Re: [CANSLIM] RINO and =
general=20
execution of trades</SPAN></FONT></P>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3D"Times =
New Roman"=20
size=3D3><SPAN style=3D"FONT-SIZE: 12pt"></SPAN></FONT> </P>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
size=3D3><SPAN=20
style=3D"FONT-SIZE: 12pt; FONT-FAMILY: Arial">I believe this would be =
entirely=20
illegal, and likely to cause the Broker Dealer to quickly go out of =
business,=20
altho by then likely wouldn't have any customers left=20
anyway.</SPAN></FONT></P></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3D"Times =
New Roman"=20
size=3D3><SPAN style=3D"FONT-SIZE: 12pt"></SPAN></FONT> </P></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial">----- Original Message =
- -----=20
</SPAN></FONT></P>
<DIV style=3D"font-color: black">
<P class=3DMsoNormal style=3D"BACKGROUND: #e4e4e4; MARGIN-LEFT: =
0.5in"><B><FONT=20
face=3DArial size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: =
Arial">From:</SPAN></FONT></B><FONT=20
face=3DArial size=3D2><SPAN style=3D"FONT-SIZE: 10pt; FONT-FAMILY: =
Arial"> <A=20
title=3DChazmoore@aol.com =
href=3D"mailto:Chazmoore@aol.com">Chazmoore@aol.com</A>=20
</SPAN></FONT></P></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><B><FONT face=3DArial =
size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: =
Arial">To:</SPAN></FONT></B><FONT=20
face=3DArial size=3D2><SPAN style=3D"FONT-SIZE: 10pt; FONT-FAMILY: =
Arial"> <A=20
title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</SPAN></FONT></P></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><B><FONT face=3DArial =
size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: =
Arial">Sent:</SPAN></FONT></B><FONT=20
face=3DArial size=3D2><SPAN style=3D"FONT-SIZE: 10pt; FONT-FAMILY: =
Arial"> Tuesday,=20
October 22, 2002 4:31 PM</SPAN></FONT></P></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><B><FONT face=3DArial =
size=3D2><SPAN=20
style=3D"FONT-WEIGHT: bold; FONT-SIZE: 10pt; FONT-FAMILY: =
Arial">Subject:</SPAN></FONT></B><FONT=20
face=3DArial size=3D2><SPAN style=3D"FONT-SIZE: 10pt; FONT-FAMILY: =
Arial"> Re:=20
[CANSLIM] RINO and general execution of =
trades</SPAN></FONT></P></DIV></DIV>
<DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3D"Times =
New Roman"=20
size=3D3><SPAN style=3D"FONT-SIZE: 12pt"></SPAN></FONT> </P></DIV>
<P class=3DMsoNormal style=3D"MARGIN-LEFT: 0.5in"><FONT face=3DArial =
size=3D2><SPAN=20
style=3D"FONT-SIZE: 10pt; FONT-FAMILY: Arial">Buck: Excellent question. =
I have=20
found myself in similar situations and have wondered how I was taken. =
Maybe some=20
of the insiders on the board will venture a guess. Here is my guess. =
<BR><BR>If=20
you are dealing through a discount broker and are enjoying some of the =
$7.00 or=20
$10.00 transaction costs, it is possible your broker has a deal with a =
market=20
maker wherein you pay at the highest bid while your broker buys at a =
lower price=20
and splits the difference with the market maker. I have been told this =
is how=20
some discount brokers can provide such low acquisition costs. Anyone =
know for=20
sure? <BR>Charley</SPAN></FONT><FONT face=3DArial><SPAN=20
style=3D"FONT-FAMILY: Arial"> </SPAN></FONT></P></DIV></BODY></HTML>
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