could you please explain why they don't sell order flows for futures but do for stocks and options? thanks
Help me understanding this "paying for order flow" business!
- Thread starter TimtheEnchanter
- Start date
could you please explain why they don't sell order flows for futures but do for stocks and options? thanks
Generally speaking, US regulated futures exchanges consider PFOF to be an abusive market practice.
There are a couple notable exceptions for good operational reasons, but nowhere close to being as pervasive as the stock exchanges and it's not really the same thing as just selling trades to a pack of wolves. The first exception for futures will be for block trades and some fairly exotic trades like swaps for futures and exchange of physicals - there, the exchange (Clearport for CME and LCH for ICE) has to solicit market makers for quotes via an electronic Request for Quote and they will execute at the best price submitted if the customer agrees. Block trades are huge: I've seen them routinely for 2,500 and 5,000 lots. The second exception is for seldom traded illiquid products where again, an electronic Request for Quote is sent to market makers and they will execute at the best price submitted if the customer agrees. Also, some designated market makers for the lower volume contracts may receive rebates if they execute a certain level of volume. Again, this isn't as egregious as what the stock markets are doing on a massive scale and the intent for the futures exchanges is to generate participation and fill customer orders in some fairly illiquid (and exotic) circumstances.
There are a couple notable exceptions for good operational reasons, but nowhere close to being as pervasive as the stock exchanges and it's not really the same thing as just selling trades to a pack of wolves. The first exception for futures will be for block trades and some fairly exotic trades like swaps for futures and exchange of physicals - there, the exchange (Clearport for CME and LCH for ICE) has to solicit market makers for quotes via an electronic Request for Quote and they will execute at the best price submitted if the customer agrees. Block trades are huge: I've seen them routinely for 2,500 and 5,000 lots. The second exception is for seldom traded illiquid products where again, an electronic Request for Quote is sent to market makers and they will execute at the best price submitted if the customer agrees. Also, some designated market makers for the lower volume contracts may receive rebates if they execute a certain level of volume. Again, this isn't as egregious as what the stock markets are doing on a massive scale and the intent for the futures exchanges is to generate participation and fill customer orders in some fairly illiquid (and exotic) circumstances.
Payment for order flow is possible because your equity/option order is directed to a separate "exchange" (well ECN if you want to be specific) where the market makers do their thing. Futures are single-listed and the exchanges do not want competition in the form of off-exchange trading.
Well, there used to be quite a bit of duplicative listings between regulated futures exchanges in the late '90's and early 2000's in an effort to poach business from each other - mercifully this amounted to nothing and the exchanges stopped this circular firing squad nonsense.
bull shit. citidel is sniping
it doesn't mater. A retail client cannot otherwise receive a fill to four digit places. e.g. 92.2186
i know i used to work at a firm that ripped everyone off that way
Times have changed. Except for stock under$1.00 order can be entered only up to two decimal places but filled up to four decimal places. e.g. buy at 47.02 Filled at 46.0151
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i know possibly every rule related to market microstructure there is, but thanks for informing me of a nearly decades old development.
To the OP, see https://www.finra.org/rules-guidance/notices/85-32