10 ms·

https://news.ycombinator.com/item?id=11667688 https://news.ycombinator.com/item?id=11667688

kasey_junk 10y ago
I'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 ago
  Yes, 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 ago
    In 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.
    - jsprogrammer 10y ago
      >In 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. Or, you know, improve beyond the $0.001/sh the wholesaler paid.
      - kasey_junk 10y ago
        No, it wouldn't have. That's the point of why they improved you. By that point there was no one else available to do it.
        jsprogrammer 10y ago
        So, you wait around for an order at your limit or better. There is nothing that says your limit order must fill, even if no on is available.
        kasey_junk 10y ago
        It won't be better, that's not how it works. At the point that they filled you at 10.299, the market is set at 10.30. 1 of 2 things can happen. Either there is enough volume to fill you at 10.30 that your order is fully filled at 10.30 (worse than the wholesaler gave you) or there isn't and some of your order fills at 10.30 (worse than the wholesaler gave you) and you have now set the new market level and rest your order. Once your order rests, it will not be improved and will either fill at 10.30 (worse than the wholesaler gave you) or it will be cancelled (you didn't get what you wanted). Most people placing a limit order like that would prefer the outcome that the internalizer provides, if you don't, great use a broker that allows you to route direct. But its certainly not front-running because the internalizer acted directly in your stated interests, not against them.

I'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 ago
Yes, 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 ago
  In 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.
  - jsprogrammer 10y ago
    >In 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. Or, you know, improve beyond the $0.001/sh the wholesaler paid.
    - kasey_junk 10y ago
      No, it wouldn't have. That's the point of why they improved you. By that point there was no one else available to do it.
      - jsprogrammer 10y ago
        So, you wait around for an order at your limit or better. There is nothing that says your limit order must fill, even if no on is available.
        kasey_junk 10y ago
        It won't be better, that's not how it works. At the point that they filled you at 10.299, the market is set at 10.30. 1 of 2 things can happen. Either there is enough volume to fill you at 10.30 that your order is fully filled at 10.30 (worse than the wholesaler gave you) or there isn't and some of your order fills at 10.30 (worse than the wholesaler gave you) and you have now set the new market level and rest your order. Once your order rests, it will not be improved and will either fill at 10.30 (worse than the wholesaler gave you) or it will be cancelled (you didn't get what you wanted). Most people placing a limit order like that would prefer the outcome that the internalizer provides, if you don't, great use a broker that allows you to route direct. But its certainly not front-running because the internalizer acted directly in your stated interests, not against them.