ECN revolution

don't get me wrong, there are definately advantages to open outcry such as the working of spread orders, volatility trades against a basis, etc. However, after being intimate with both open outcry markets and electronic markets for the past 15 years, it is clear that institutions and retail investors prefer the level playing field provided in an electronic market that supports price/time priority. The main reason has to be due to consistantly better fills.

every now and then there will definately be some fat fingered trader entering an order incorrectly that ends up cleaning out the books (i.e. sell 2000 at 1 instead of 1 at 2000). However, any decent brokerage or trading system should have risk management built into their platform to avoid such messes. More importantly exchanges should have steadfast rules and/or make swift decisions when busting a trade. Eurex clearly made a mess of things (see article in link above) by not making a decision for 5 hours. Even with such a mess, you do not see the market participants screaming for the days of open outcry. They are screaming for decent rules.

In regd's to rtharps and don's comments, the same does happen on electronic platforms - they are called block trades. These trades are negotiated off floor and if large enough are crossed as a block at one price (I personally believe block trades should be treated as crosses where the market should be able to participate on half the trade but that's an argument for another day).

re Eurex: liquid futures markets tend not to need market makers after they become successful. However, options are another story. Eurex depends on a number of firms to make markets and respond to quote requests in their index and individual options.
 
I prefer the ECN-type environment but wasn't rtharp's and don's point that the individual investor will not enjoy the bump on a block trade in an ECN environment whereas the NYSE specialist will generally include you in his large trade?
 
One of the best ways to protect against specialist/MM games and large after-hours block deals is to only risk a small amount on each trade. That way, when you're sucker punched, say, by an after hours "price adjustment" on a trade held overnight, it won't cost a months pay or half your account. It's psychologically difficult to see 3-4 days labor wasted but it's tolerable, it's devastating to see a months work go down the tubes.
Make sure the inevitable losses are "darnet's" and not "oh F#$*k's!".
 
Island is pleased to announce its first price change since June of 1998.

Effective March 1, 2002, the subscriber takeout fee will drop from 25 cents per hundred shares to 19 cents. In addition, the rebate for adding liquidity will increase from 10 cents per hundred shares to 11 cents. This represents a 47% price cut. The cost for an Island subscriber that adds and removes liquidity in equal amounts will now be only $0.0004 per share. That is only 4 cents per hundred shares.

http://www.island.com/prodserv/bd/subscribe/feeschedule.asp

Thanks to Island's subscribers, Island is now the largest ECN,1 as well as the largest single marketplace for the most heavily traded stock in the world: QQQ.2 This liquidity results in significant economies of scale. Island is committed to sharing those economies with its subscribers.
 
Originally posted by Vinny1
Why would anyone use anything but Island,since it is the cheapest ECN?
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Lots of reasons, as cost of execution isn't the only factor in my decision. For one major thing, ISLD doesn't "work" orders, it only trades within it's own book (and posts to the Nasdaq L2 when it's the inside). ARCA and REDI will work your order, checking thier own book, then all the other ECN's, them MM's. In this day of SuperSOES it happens in a blink. Also, you can't put stops on ISLD, but you can on ARCA and that's a big plus (particularly since it sits on their server so if you're disconnected you've still got your stop in place).

Of course price is a consideration, but it's not the only one. Same for choice of brokers.
 
Plus, with Arca I can put in a change order for price and size if I get a partial and not be charged another ticket fee.

I wish I could do this with Island since they are cheaper.
 
Originally posted by mike s
Plus, with Arca I can put in a change order for price and size if I get a partial and not be charged another ticket fee.
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Good point Mike, forgot that. It's so automatic I do it all the time without thinking about it. One other thing is ARCA reserve orders, allowing you to easily hide your true size (with auto-refresh). Doesn't exactly put you on a level playing field with a market-maker's L3 screen, but it can be a very useful capability. I know ISLD allows hidden orders, but if I remember the functionality is different.

And of course I wish ARCA was as cheap as ISLD, but I also wish Realtick was as cheap as IB, and fantasy hasn't gotten me anywhere with that one either! :)
 
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