Quote from nitro:
Only your explanation of how you claim they rip you off. 85% of the time, you are not even trading wth a spec.
Completely depends on the stock.
There are many tactics at the specialist's disposal but he can only do so much if the volume is going via SDOT and the book and ECNs are very active.
Because there is no pure electronic execution except for ECNs, many times you have to deal with the specialist. NX is not a pure electronic execution, it can and does get turned off, if the quote changes, it turns into limit and if the size is not there, the NX is invalid for the rest of the amount.
On the high volume sector stocks, the specialist is worthless and only interferes. The best price improvement to me came from ECNs on the fake spreads, while the most slippage came from held market orders. I would have loved to just hit the NYOB bid, but alas, held limit orders and ignored NX forced me to go market. The ECN wasnt there.
Then there are the lower volume stocks, where you are forced to deal with the specialist most of the time and give him your order to do with as he pleases. Those are also the easier stocks to tape read so it's a give and take but if you are not looking for the tape read trade, the specialist is on average an additional cost.
I used to trade TIE before it got hot, that stock used to do 100,000 a day and 80% of the volume was through the specialist. How can you even argue that 85% I did not deal with him, it was almost all him and it was quite profitable to me. Yeah he did his work, when that guy went to hit the stops, you pretty much had to get ready to pay him. Insane spreads were common, slippage was expected. I paid him my dues, there was no way around it and it was a proper give and take because it became mostly tape read trades. However, I started trading that stock based on fundamental issues not because I saw the tape reading action. Had it been a Nasdaq stock I probably would have made more.
Even in NYSE stocks, you can route to an ECN of your choice (if it trades there), so why route to the NYSE?
Because ECNs are not that active yet on most stocks but they are getting there. Once again, you only support the argument for getting rid of them, let the flow go electronic. That's the Hybrid, it's giving way to electronic flow while still letting the specialist rob for a little longer before they are fully extinct.
Their ole boys racket is being broken up and split up among the banks. The corruption will still be there but it will be more evolved and clever. Nothing is going to stop any daytrader from creating a black box to scalp spreads once NYSE goes fully electronic. Go ahead and go claim a piece of the power the specialists have when it happens. But for now, there is a lot stopping from getting in on their racket, like bloodlines and very special connections.
There is zero need for them unless you are a trader that needs the tape reading edge. That human element and liquidity arguments are complete BS. All across the world the move has been toward more electronic without any consideration of more human element. Guess according to NYSE, they are all wrong. HA!
