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Thanks, Dick, for very informative rundown of OTC practices. A couple of
thoughts on OTC trading.
1) My experience even with relatively active stocks that are under
the new NASDAQ rules is that the market makers routinely ignore my
improving their market. It often takes a call from my broker to force
them to show the improved market. These are outright violations of the
new rules and occur every day in many stocks.
2) While SOES traders do exaggerate intra-day swings, they improve
liquidity and make it tougher for the market-makers to rip-off the
public with excessively wide spreads. The public has benefited from SOES
traders who, together with the new rules, have mitigated the
monopolistic practices of the mainline brokerage marketmakers.
3) Question for Dick. Can you have your broker send the order
directly to the Island so that you can compete directly with the
marketmaker on the bid or offer? Or any other ideas on how to buy on the
bid and sell on the offer other than openind and account with
Datek? Thanks, CMA
Dick Jurgens wrote:
> Hi Jerry,
>
> Here's a little info. you might find helpful....Soes traders take a
> lot
> of flak for the volatility of the market, and a little credit for
> adding
> liquidity....The funny thing is they are able (through ECN's like the
> Island) to "play" market maker, and buy on the inside market bid, and
> sell on the inside market ask. So while they tend to help exaggerate
> price moves, they also provide very healthy competition with
> traditional
> brokers/market makers and as a by product, make it possible for lesser
>
> mortals like you and I to be able to do the same thing....
>
> If you get an account with Datek securities, they hard wire your order
>
> directly to the Island (via LAN) and you can actually place a limit
> order to buy at the best BID price, and if somebody is selling, you
> can
> get filled without paying the spread. (Of course, if you're buying and
>
> someone else is selling, you may not WANT to get filled, as the price
> may be headed down <g>)
>
> If you have Level 2 Nasdaq screens, or have a friend who does, you can
>
> actually "see yourself" come up on the bid with a limit order to buy
> at
> the current inside bid price !
>
> Of course, Datek has it's own limitations......forget openings and
> fast
> market conditions...they just get overloaded (primarily with people
> trying to use the free real-time quote buttons over and over, I think)
>
> But on a stock with a dollar or two spread, this feature can make
> quite
> a difference if you have the patience.
>
> Plus, if you set strict mental stops, you don't have to "give away"
> the
> spread to your downside stop-out point.
>
> I've always wondered about the effect of Soesers on T/A though. I
> spent
> some time at a large Soes shop in lower Manhattan, and there were
> 150-200 guys, some of whom were turning 150-200 thousand shares per
> day
> (round trips, of course)....The question I've never heard discussed is
>
> what this kind of activity does to open,close,high,low,volume based
> indicators like money flow, A/D, OBV, etc..........Especially if they
> act as a market maker on one side of the trade, and a retail buy/sell
>
> on the other.
>
> On Intel, it probably doesn't make much difference, but on a stock
> with
> a float of less than 10MM shares ?
>
> Food for thought, eh ?
>
> Dick
>
> P.S. There's no exchange rule against stop loss orders on the
> Nasdaq....but brokerages like ML and Fidelity don't allow them, I
> suppose because they got tired of explaining why the stop order was
> filled at the bottom of a gap down, then the stock closed higher than
> the fill.......A lot of stocks have left the Nasdaq because of the
> volatility, only to find their share price gradually declines on
> less-volatile exchanges.
>
> Greatelto@xxxxxxx wrote:
> >
> > Hi Dick....
> >
> > Well, I guess our approaches to investing in the small and micro
> stocks are
> > different. It looks like you follow them very closely with real
> time quotes.
> > I invest quite a bit in these stocks but only follow them maybe
> once during
> > the day and then only if I am interested in entering a trade.
> Generally it
> > is at the end of the day when I check on them. However, this
> difference (if
> > it does exist) should not prevent an occassional post that could
> prove
> > helpful to either of us.
> >
> > It is my belief that the SOES traders should be banned. I think
> this would
> > cut down on some of the volatile price movements in the market
> place.
> >
> > Perhaps your comments on the rip-offs that take place are well
> founded. But
> > it has been my experience that the traders at the bigger (and
> better) houses
> > are more ethical. I currently trade with Merrill Lynch and have not
>
> > experienced what you talk about. True, I pay more but they do
> discount me.
> > And my executions are respectable and acceptable. However, when I
> do deal
> > in a very thinly traded stock, I will use limits only. I may miss
> it, but I
> > pick and set the prices I will pay or get. I am studying the
> possibility of
> > trading on line....but I don't know yet.
> >
> > I do have a question. Since I do not and will never place an active
> stop
> > order (well, maybe in the event of absence or sickness), I may be a
> tidge out
> > of touch on the latest rules. Obviously, you placed a sell stop on
> a thinly
> > traded OTC stock. I did not think you could place an actual stop
> loss on an
> > OTC stock. What I am saying is this. Perhaps what you thought was
> a stop
> > loss order was entered as a regular sell limit order near the
> current bid
> > price and you just got an execution on a straight sell. This
> thought came to
> > me after I sent my previous post. Check it out and let me know.
> >
> > Jerry
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