3 ms·

This isn’t true for every firm, but a lot of them do it. I think it’s bad (it’s weird/unfair), but on the other hand I am happy not paying commission/getting o

This isn’t true for every firm, but a lot of them do it. I think it’s bad (it’s weird/unfair), but on the other hand I am happy not paying commission/getting orders filled at prices often a bit better than advertised on my broker’s app, so maybe it’s ok? Idk.

sp527 6y ago
I’d argue it’s not bad at all. It very cleanly aligns incentives in a way that benefits both sides. Another way to look at it is that there’s an “implied commission”, paid in the form of a perhaps slightly inflated purchase price, that largely doesn’t affect retail investors. And this all works out for quant firms because they make money off this at volume, at near zero marginal cost. In fact, it’s odd that commission free trading didn’t happen a lot sooner. Etrade, Schwab, etc were rent seekers.
badfrog 6y ago
> I think it’s bad (it’s weird/unfair) How is it bad or unfair? Everybody wins: you get a better price, the market maker does a trade they're happy with, and your broker gets a little bit of money.
- sesuximo 6y ago
  I think it’s a little unfair compared to letting people put their orders on exchanges directly
  - badfrog 6y ago
    You are guaranteed a price that is equal or better than what you'd get on the exchange. Why would you want to bypass that?
    - sesuximo 6y ago
      Well “the price” might be totally different if there were no off-exchange orders. But I’m sort of being a devil’s advocate... I agree with your argument in practice since I don’t expect to see such open exchanges anytime soon
      - badfrog 6y ago
        > Well “the price” might be totally different if there were no off-exchange orders. I'm not sure what that means, but there's no scenario in which you'd get a worse price. That would be illegal under the Reg NMS order protection rule. https://www.investopedia.com/terms/o/order-protection-rule.asp https://www.investopedia.com/terms/o/order-protection-rule.a...
        sesuximo 6y ago
        You won’t get a worse price than what the exchange says is the price, but that price Is a moving target; if all competitors could see all orders, the price would move. Idk if it makes a difference on average but it is a difference

sp527 6y ago

I’d argue it’s not bad at all. It very cleanly aligns incentives in a way that benefits both sides. Another way to look at it is that there’s an “implied commission”, paid in the form of a perhaps slightly inflated purchase price, that largely doesn’t affect retail investors. And this all works out for quant firms because they make money off this at volume, at near zero marginal cost. In fact, it’s odd that commission free trading didn’t happen a lot sooner. Etrade, Schwab, etc were rent seekers.

badfrog 6y ago

> I think it’s bad (it’s weird/unfair) How is it bad or unfair? Everybody wins: you get a better price, the market maker does a trade they're happy with, and your broker gets a little bit of money.

sesuximo 6y ago
I think it’s a little unfair compared to letting people put their orders on exchanges directly
- badfrog 6y ago
  You are guaranteed a price that is equal or better than what you'd get on the exchange. Why would you want to bypass that?
  - sesuximo 6y ago
    Well “the price” might be totally different if there were no off-exchange orders. But I’m sort of being a devil’s advocate... I agree with your argument in practice since I don’t expect to see such open exchanges anytime soon
    - badfrog 6y ago
      > Well “the price” might be totally different if there were no off-exchange orders. I'm not sure what that means, but there's no scenario in which you'd get a worse price. That would be illegal under the Reg NMS order protection rule. https://www.investopedia.com/terms/o/order-protection-rule.asp https://www.investopedia.com/terms/o/order-protection-rule.a...
      - sesuximo 6y ago
        You won’t get a worse price than what the exchange says is the price, but that price Is a moving target; if all competitors could see all orders, the price would move. Idk if it makes a difference on average but it is a difference