What is selling order flow?

J

jmcgraw

I have a general idea what selling order flow is, but I would like to know if anyone can clarify it for me.

From what I understand, certain web-brokers sell their orders to a market maker for a price. Thus the market maker is not competing for the order, meaning he has complete control over the fill. Am I right so far?

I also notice that alot of web-brokers charge more for limit orders on Listed issues than all other orders. Does this mean that it is not possible to sell order flow when
someone enters a Listed equity Limit order? Do the Limit orders on listed equities go straight to the exchange, thus eliminating the oppurtunity to sell orders to a MM? How about Listed market orders, can a broker sell order flow of market orders for Listed stocks or does it go straight to the specialist?

How about limit orders on the nasdaq? Those would just go to Island and you would have no problem, right? Is order-flow selling only a problem if you want to sell a nasdaq stock at the market?

I guess I just dont have a well rounded understanding of the subject. And if anyone could clarify, I would greatly appreciate it.

BTW I've been looking for a book on the details of order-routing, the tactics of brokers, the rules of all the exhanges, etc. Most books are just full of crappy trading methods, and just try to get you excited. Does anyone know of a good book on the technical side of the market? (Not "technical" as in "technical analysis", but rather all the details of what goes on behind the scenes)
 
John

I've traded with Waterhouse, Morgan Stanley, Southwest Securities, Richmark Capital, Fox Investments, Morgan Stanley I choice and now trade with Echotrading through ECN's.



FIrst If I do a market order with ECHO I am usually filled a tick or 2 away from the best bid or offer/ if I was with any of the above I was given the worst possible price between the inside bid or offer. Selling order flow means that the broker can get you a fill for this price but sends your order to his friend in return for cold hard cash. His friend then works the ordrer for a few extra ticks. When trading in a long term timeframe a few ticks made very little to me. I trade off one minute/30 minutes bars now so a tick makes a big difference.


Web brokers do not use island as you mentioned. Island ECN's can be dangerous. I've clicked on a price that was outside the best inside bid/ask before by accident. Talk about a fast fill. A few four letter words came out my mouth as I watched the trade move against me.

A good book for the basics is Idiots Guide to Daytrading. Stupid name but interesting info.

Robert Tharp
 
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