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I read the introduction of the wiki article, but I'm still at a lost.. the third party pays back the broker because it "wants to influence how the broker routes
by esMazer 12y ago
I read the introduction of the wiki article, but I'm still at a lost.. the third party pays back the broker because it "wants to influence how the broker routes client orders" what? so if I were the broker I would deny or allow my customers transactions based on a third party?
I'm sure is not like this and the broker won't deny any transaction if I were the broker I would just get a commission on some transactions by third parties but I don't see what I could change in order to get a greater commission.
could you elaborate please, I'm at a lost.
- kasey_junk 12y agoThe third party doesn't pay back the broker, they flat out pay them a fee to send transactions through their systems. The broker doesn't allow or deny any transactions, just in the absence of contradictory routing instructions they send their default orders through the third party. The customer is usually none the wiser as they are being charged the same fee from their broker typically regardless of the routing. The only way a customer would know is if the broker discloses it to them. In the US equities markets that disclosure is a legal requirement.
- esMazer 12y agoohh I get it! Basically there's a market of third party companies and the broker has the liberty to choose to who give all its "traffic"/transactions, but the broker is choosing the company based on the fee it gets instead of other factors (which I'm sure there are many) in this case the choice might not be the best for the customers just to the broker. Definitely nothing is free!