do different discount brokerages have different bid/ask spreads on equities?

[stockmarketbeginner]

Hello,

I created post seeing what people think of Ally Invest. I found a comment so interesting that I though it warranted its own post:

"... OANDA had better spreads than ALLY Invest, whose spreads were often RIDICULOUS!"

I find this amazing. Is it true that, for example, something like this could happen:

Microsoft stock
Schwab: 85.00 bid, 85.40 ask
Ally: 84.90 bid, 85.50 ask

I thought bid/ask was determined by the general community of market makers out there. I had no idea one online brokerage could be offering meaningfully different bid/asks compared to another brokerage. Maybe an obscure stock, but not a popular one like Microsoft.

So if Ally (as a theoretical example) has $2 less per trade, but gives you a $.15 per share worse selling price, then you would be worse off on the sale of 100 shares. You saved $2 in fees, but got $15 less for the shares you sold.

 

[Robert Morse]

They might not be providing you full market data, only the primary exchanges without the ECNs. Ask them. They are not allowed to trade through the NBBO.

 

[stockmarketbeginner]

They might not be providing you full market data, only the primary exchanges without the ECNs. Ask them. They are not allowed to trade through the NBBO.

Thanks, Robert.

What does "trading through" the NBBO mean? Do you mean they are not allowed to offer NBBO prices, or do you mean they cannot offer prices worse than NBBO?

I got this from investopedia:
"The National Best Bid and Offer is the lowest available ask price and the highest available bid price for investors buying and selling securities. While Regulation NMS requires that brokers provide NBBO prices to their clients, the regulations are difficult to enforce and the fast pace of trading makes it difficult to keep information fresh at all times. Investors should keep in mind that the prices may be stale in some cases and that not all prices may be reflected since dark pools and other alternative trading systems may not have listed bid/ask prices."

So it looks like a brokerage that offers NBBO quotes is good for everyday basic investors. I'm not a fraction-of-a-penny trader. I'm just looking for a basic idea that if I buy Microsoft for 85.25, it's not 84.90 somewhere else. That's way too much of a difference.

 

[Robert Morse]

Thanks, Robert.

What does "trading through" the NBBO mean? Do you mean they are not allowed to offer NBBO prices, or do you mean they cannot offer prices worse than NBBO?

I got this from investopedia:
"The National Best Bid and Offer is the lowest available ask price and the highest available bid price for investors buying and selling securities. While Regulation NMS requires that brokers provide NBBO prices to their clients, the regulations are difficult to enforce and the fast pace of trading makes it difficult to keep information fresh at all times. Investors should keep in mind that the prices may be stale in some cases and that not all prices may be reflected since dark pools and other alternative trading systems may not have listed bid/ask prices."

So it looks like a brokerage that offers NBBO quotes is good for everyday basic investors. I'm not a fraction-of-a-penny trader. I'm just looking for a basic idea that if I buy Microsoft for 85.25, it's not 84.90 somewhere else. That's way too much of a difference.

Based on Reg-NMS, it means you are still entitled to the best price available in the market at that point time, even if you’re market data that does not provide those order books.

You can’t buy at 14.05 on the NYSE if EDGEX is at 14.04.

 

[Robert Morse]

Thanks, Robert.

What does "trading through" the NBBO mean? Do you mean they are not allowed to offer NBBO prices, or do you mean they cannot offer prices worse than NBBO?

I got this from investopedia:
"The National Best Bid and Offer is the lowest available ask price and the highest available bid price for investors buying and selling securities. While Regulation NMS requires that brokers provide NBBO prices to their clients, the regulations are difficult to enforce and the fast pace of trading makes it difficult to keep information fresh at all times. Investors should keep in mind that the prices may be stale in some cases and that not all prices may be reflected since dark pools and other alternative trading systems may not have listed bid/ask prices."

So it looks like a brokerage that offers NBBO quotes is good for everyday basic investors. I'm not a fraction-of-a-penny trader. I'm just looking for a basic idea that if I buy Microsoft for 85.25, it's not 84.90 somewhere else. That's way too much of a difference.

You should be offered either Level 1, aka top of book aka NBBO or Level 2 which shows what ECN or exchange are at each price level. For you, L1 is fine.

 

[Metamega]

That poster was talking about currency spreads. As most forex brokers, the broker is the counter party to the trade, they make the market.

Nothing to do with stocks.

 

[Robert Morse]

That poster was talking about currency spreads. As most forex brokers, the broker is the counter party to the trade, they make the market.

Nothing to do with stocks.

"I buy Microsoft " looks like a stock to me.

 

[Metamega]

He’s referencing his previous thread.

https://www.elitetrader.com/et/threads/ally-invest-opinions-experiences.316741/#post-4578457

Post 5 I think.

Should’ve just put this in his original thread instead of creating a new one.