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That document is mostly conspiracy nonsense. Wholesalers don't need to push the price around to make money. Most retail trades are tiny, uncorrelated with futur
by mrchicity 10y ago
That document is mostly conspiracy nonsense. Wholesalers don't need to push the price around to make money. Most retail trades are tiny, uncorrelated with future order flow, and don't have short-term alpha behind them. The wholesaler will make money filling them at the NBBO with a small improvement and holding the delta. When you can't be hit by hedge funds slicing their massive order into a million pieces, HFT quant algos or arbitrage traders, and don't have to compete to be first in the FIFO queue, making money buying the bid and selling the offer is easy money.
- tptacek 10y agoThat was my intuitive reaction to that Nanex post as well, but I didn't see how I would handle the rebuttal that doing stuff like Nanex talks about would make internalizers or wholesalers more money.
- evanpw 10y agoWholesalers have agreements with retail brokers to provide a certain level of "execution quality", and that's what they compete on (fiercely). If they pushed the price around on one order, they'd have to make it up on some other order to meet their obligations. It's measured against NBBO at order receipt time, so chollida1's example would count as negative price improvement (even if the best offer was only showing 100 shares and not 2000).