Proof That Specialists Are Crooks

Originally posted by slapshot



As I mentioned earlier, I only usually put stops on to prevent catastrophe like my DSL goes down or some other problem and then market reverses heavy. This way I know I will get filled somewhat near the stop during a daytrade.

I don't actaully use stop markets to make planned trade exits.

Stop limits have a way of not getting filled...

Or could you advise me of a better way to go? I'm still learning... :confused:

Thank You
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If you place the stop too close, you'll get hit and AMEXified too often On the other hand, if you don't place the stop close enough, you might as well depend on a back-up dial-up connection or the telephone for all the good it'll do you - or it'll get hit just often enough on the kind of spike that usually reverses immediately, or, alternatively, that you couldn't have gotten out of at a decent price anyway, stop or no....

No one said that life would be easy...

When I consider possible scenarios and probabilities and weigh them against the incidental costs, inconvenience, distraction, etc., involved in using resting stops, I don't see much argument for them, for me, anyway - least of all on ETFs. I hardly ever use them except for bathroom breaks or something... But that's just me... T'each his own...
 
Originally posted by slapshot



Thanks, I'm not trying to break the trade, just trying to understand how it happened as under different circumstances it could be tragic.

Thanks for the advice for future reference.

Paul
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but if there was a mistake the trade can be broken rather easily.

Robert
 
I personally don't think it's a good idea to use stops. When you do you're letting the Spec's and MM's know your intentions and also make yourself a sitting duck. Even standing limit orders can be backed away from on <1000k volume stocks temporarily to apply psychological pressure to get you to sell before it breaks upwards. Don't use stops and use limits cautiously.
 
I think Tradestation holds stops in the customer's computer. Of course now I can't find the quote on their website, but I'm pretty sure it's there. Could have just been filled on a bad tick, which may not appear on the chart if they cleaned the data. They warn
you of this in the disclaimers, so there's probably nothing you can do.

Also, the stop does you no good if you lose your connection, so if that's why you're using it, you might reconsider.
 
Does anyone know if amex and nyse take stop orders on spiders qqq and the other etfs they trade. Like I said earlier a couple years ago amex did not at least over my system. But for curiosity's sake what is the current situation. Where is the Deron guy when I need him. (Just kidding)
 
Originally posted by mgkrebs
I think Tradestation holds stops in the customer's computer.
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I believe that stop orders for Naz stocks are held by MLCO (through the operation that was formerly HRZG), but I don't know how that works for AMEX and listed stocks (not my bailiwick), and whether the ownership changeover has had any other effects. Someone ought to call up for an update and full explanation. The stops are NOT in "customer computers" - presuming you mean "our" computers (they're not even in TS brokerage computers - unless AMEX/listed are treated differently somehow). In other words, the stops will execute while you're logged out.
 
Originally posted by buzzy2


Hello ??? Chicago speaking?? Is it true that the S&P pit operates without a specialist? No, you must be nuts, I don't believe it, it's impossible for ANY market to operate without a specialist.

Hello?? Frankfurt?? Is it true that EUREX operates fully electronically without market makers or specialists?? No, I won't believe it even if I see it, it must be german BS.

Hello?? Paris??... London?? ...

Seriously, I acknowledge that it escapes to common sense that a "chaotic" bunch of buyers and sellers can "self-organize" and operate smoothly. But if it were obvious then communists and crybaby liberals wouldn't exist.
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Buzzy U make a good point. I think that, when a whole bunch of people concentrate in a few closely related markets, the pit model is effective.

Two (or more) things come to mind, though. First, the Spoo is a derivative of the cash market, which is a specialist/dealer market. The benefits provided by specialists in organizing the cash market arguably carry over and lend order to the derivative market.

Also, I don't know how well the market for the multitude of lower liquidity issues would work without a <i>market maker.</i>

Finally, the NYSE is a business that competes for the listings of stocks. NYSE provides a highly visible, liquid, and prestigious market to its customers. One of the benefits the specialists get in exchange for being compelled to make markets is that they can <i>make the market.</i> It's a two edged sword.

You're arguing that, in a free market, market makers will spontaneously manifest (which they do). But that's what the NYSE is. It's a monster market maker that has been around for so long, that it has become an institution. This often leads to arrogance and monopoly, the cure (or at least a check-and-balance) for which is competition.
 
Two reasons that we need MMs and specialists:

<b>Reason 1: Market Orders</b> If everyone only used limit orders or some form of price-definite market clearing mechanism (e.g. one of the many forms of auctions), then we would not need special parties to provide liquidity or to ensure a fair and orderly market. That some people just want the convenience of buying or selling without having an opinion of the price means we need somebody to create a fair and orderly market. With defined-price mechanisms (limit orders and auctions), there can be no destructive order imbalance. For example, eBay works just fine without any specialists or MMs.

<b>Reason 2: Continuous Trading</b> Real-time markets also drive the need for MMs and specialists. The second-to-second random arrival rates of orders creates transient statistical order imbalances. That we want the order to clear rapidly creates the problem that is solved by MMs and specialist (they provide the buffer for these transient order imbalances). Even a system with only limit orders would become volatile when pushed to timeframes too fast for the statistical variation on order arrivals. In contrast, if all orders were accumulated and electronically matched once a day (or, if Warren Buffet had his way, once a year), the system would also work quite well. Is it really that important to be able to buy or sell a security at 9:30:01, 9:30:02, 9:30:03, .... etc.?

Thus, MMs and Specialists are the price we pay for convenience of market orders and real-time trading.

Happy trading, in spite of (or because of??) MMs and Specialists,
Traden4Alpha
 
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