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This is all hand-waving. Neither you or tptacek have altered the fundamental reality: >In the scenario presented, the wholesaler receives your order, then exec
by jsprogrammer 10y ago
This is all hand-waving. Neither you or tptacek have altered the fundamental reality:
>In the scenario presented, the wholesaler receives your order, then executes its own orders, then fills your order based on its own executions (which you are unaware of).
>The way they make money is not by changing the market against your interests,
Oh, but they do. They fabricate an order in response to yours. If they did not act, your order would not have filled at $0.001 under your limit.
>but instead booking the spread (and in fact the reason they like retail order flow is that it is naturally uncorrelated so the spread is more even).
You can call it whatever you want, the wholesaler is manipulating the market to their advantage. The wholesaler knows the price is likely to improve, so it arbitrarily truncates your order and infills its own account with the improvements.
- kasey_junk 10y agoLikely is the important part of your final sentence. They are not acting against your interests and they are taking on risk in the market to your benefit. Is it limited risk? Of course, that's their job. Finally, I'd ask, what is your point? That the law is flawed? OK, then work to change it. But know that lots of people have done their own research and come down in favor of the execution cost benefits of wholesellers.
- jsprogrammer 10y ago>They are not acting against your interests Of course they are. Had they not acted, you would have had a chance at price improvement. Instead, they took your chance for a token payment.
- kasey_junk 10y agoHow?
- jsprogrammer 10y agohttps://news.ycombinator.com/item?id=11667688 https://news.ycombinator.com/item?id=11667688
- kasey_junk 10y agoI'm going to suppose that your response is fixated on: > Wholesaler sells short remaining 1300 shares at $10.0290 whereby the wholesaler takes a speculative position wrt the original order? Are you suggesting that the wholesaler giving you 0.0010 profit on your trade guaranteed, is working against you? Without regard to your execution costs? Can you suggest a single chain of messages where you make money on that trade? What are the chances where that chain of messages is likely?
- jsprogrammer 10y agoYes, I am talking about where the wholesaler fabricates in order in response to your order. Such behavior is front-running, by definition. The wholesaler is making off-market trades and treating them as if they are on-market. The wholesaler would not trade, if it did not think it would profit. The wholesaler's profit is the difference between their buy-price and what they actually paid you. Are you suggesting that if the wholesaler wasn't interdicting orders the average price improvement for these orders wouldn't be close to the average profit the wholesaler makes on each instance of such a trade?
- kasey_junk 10y agoIn the example above, if they had not filled your order at the price improved price, it would have either filled at the higher price, or rested at the higher price. In either case you get a higher price. They do this because they are taking on the risk that the market will eventually allow them to work out of their short position at a better price than they paid you. But they don't know that it will do that. One of the reasons they pay for retail flow is that it on average goes back and forth, making it more likely that this trade works to their advantage. None of the profit of that trade came from you the limit order provider. It came entirely from the average spread.