when orders are sent from broker to market makers or to the nasdaq what info is sent?

I don’t think you can read about any of this for obvious reasons. Below is very informative interview which touches on the issue of PFOF in options.


Just to make it clear, I am not saying that MMs are evil strategy stealing manipulators. I am just saying that they need to protect themselves from informed traders as part of risk management (and profit generation of course). How far will they go? Well, we don’t know and that’s the problem. Just like nobody knew about HFT’s “special” orders until a whistle blower came out. Before that it was just a conspiracy theory.
 
Overnight said:
You are preventing future liquidity from entering the market!
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Lol, I think we are safe. I do believe that transparency is good for all participants. If people cannot get a definitive answer to a simple question that OP posted, that is a problem! It’s our industry, let’s make it better.
 
rb7 said:
Brokers make sure that the MM firms that are paying for the order flow gets executed against the Public Customer by using different mechanisms in place. MMs trade with Public Customer orders (for which they pay to receive) on the exchanges book. They don't see those orders in a different way than other orders for which they don't pay.
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"MMs trade with Public Customer orders (for which they pay to receive) on the exchanges book. They don't see those orders in a different way than other orders for which they don't pay." -
I'm not an expert in order execution; but this statement seems to be factually false. The majority of retail customer orders at major brokers are filled off-exchange.
Lots of misinformation in this forum.
 
jenny2000 said:
so i am not allowed to be paranoid? and to answer ur question no this is not what i am afraid of... i just want to know if they can track us or not? just like facebook made billions from tracking us wherever we go online imagine what someone can do if they can also track us on the stock exchange... and if u dont have anything productive to say please stay out of my question and do your fellow trader a favor
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FOR sure jenny2000 ,market makers+ specialists like to hit resting orders, but that's a good thing+ i use it sometimes.
For sure they like to fill buys + sell @ round numbers, but so do I, not fill orders, but buy + sell some there. SO that's not really ''tracking'' it's simply observation of a herd pattern.
FB makes money from selling data, and ads. Not on bid\ask spread, like MM, specialists do.
Most any have habits+ sure any MM or specialist would notice wild patterns on open price or 1st 15 minutes...........
 
Very old, boring, retail trader/investor here. I'm going to share what I have seen (and asked both brokers in different ways), what is happening.

I have accounts (including Roth IRAs) at Schwab and Fidelity.

First Schwab...They are a "free" broker who makes good money from MMs for PFOF. They will not give me a choice of exchange or market. You get good (hand holding) customer service from them...But at a price (them using PFOF). You could go for an active trader status and get better fills. This is for both stocks and options. I won't comment about the TDM buy. I also own stock in Schwab...But that's just a choice I've made.

Fidelity is a little different puppy. They won't give me a choice on which exchange I can buy or sell stocks. They do PFOF for the buys and sells. They also have good customer service.

I believe both Schwab and Fidelity will hand the buy/sell to the MM before they go onto an exchange. The MM will either accept it (fill), or send it on. You can get price improvement for all of these. Tell me if I'm wrong, but I believe all buy/sells will at least show up (for a millisecond) at an exchange...Then back to the broker.

Fidelity does offer a choice for which exchange you wish to route your options. I (many times) will go back and forth with an illiquid option between the CBOE and Fidelity's routing. Many times I will get price improvement with Fidelity's routing. This is manual trading and is very slow. With Fidelity options, I have to manually remove the potential option (cancel), then resubmit with a different routing I choose.

One time I spent about an hour trying to get price improvement for a slow option (ETFs). I could have used my time more wisely for the headache...

With retail brokers, I believe the MMs see first and then MAY send to a market.

Talking with one option person at Fidelity, he said the will HOLD my offer at their location. If someone reaches my price (options), I will get a fill...Including price improvement.

That's how I see it...I may be wrong is an area or two. I'm sure others will let you know where I may/could be wrong.
 
Cabin111 said:
Very old, boring, retail trader/investor here. I'm going to share what I have seen (and asked both brokers in different ways), what is happening.

I have accounts (including Roth IRAs) at Schwab and Fidelity.

First Schwab...They are a "free" broker who makes good money from MMs for PFOF. They will not give me a choice of exchange or market. You get good (hand holding) customer service from them...But at a price (them using PFOF). You could go for an active trader status and get better fills. This is for both stocks and options. I won't comment about the TDM buy. I also own stock in Schwab...But that's just a choice I've made.

Fidelity is a little different puppy. They won't give me a choice on which exchange I can buy or sell stocks. They do PFOF for the buys and sells. They also have good customer service.

I believe both Schwab and Fidelity will hand the buy/sell to the MM before they go onto an exchange. The MM will either accept it (fill), or send it on. You can get price improvement for all of these. Tell me if I'm wrong, but I believe all buy/sells will at least show up (for a millisecond) at an exchange...Then back to the broker.

Fidelity does offer a choice for which exchange you wish to route your options. I (many times) will go back and forth with an illiquid option between the CBOE and Fidelity's routing. Many times I will get price improvement with Fidelity's routing. This is manual trading and is very slow. With Fidelity options, I have to manually remove the potential option (cancel), then resubmit with a different routing I choose.

One time I spent about an hour trying to get price improvement for a slow option (ETFs). I could have used my time more wisely for the headache...

With retail brokers, I believe the MMs see first and then MAY send to a market.

Talking with one option person at Fidelity, he said the will HOLD my offer at their location. If someone reaches my price (options), I will get a fill...Including price improvement.

That's how I see it...I may be wrong is an area or two. I'm sure others will let you know where I may/could be wrong.
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"but I believe all buy/sells will at least show up (for a millisecond) at an exchange...Then back to the broker" - My understanding is the equities orders that are routed to market makers do never show up at the exchanges if the market maker fills them. The market maker has the option to forward them to an exchange, but in my experience that is very rare (and would basically cost the market maker money).
The brokers have agreements with market makers that dictate how much the average price improvement has to be over some period of time. The brokers receive PFOF for routing to a market maker. The market maker earns money from bid/ask spreads of the "dumb money" retail order flow. Some brokers have more favorable agreements than others, even with the same market maker (e.g. Citadel). For the brokers with higher average price improvement, this is basically a selling point to their retail customers. This is my understanding.
The entire system seems to be a bit rigged and lacks transparency. The expected price improvement agreements are hidden (although some recent papers reversed-engineered some of them), and different market participants are allowed different tick sizes (hard to understand how this can be justified - everybody should be equal under the law). It looks like there is a proposal by the regulating agencies to disallow off-exchange trading and in turn reduce the tick size on the exchanges to 3 decimals. Both the then much higher volume on the exchanges, and the reduced tick size, would basically make the exchanges as attractive for the trader as the "zero commission" off-exchange trades, plus everything would be transparent: the bis/ask spreads (replacing the then obsolete price improvements), the fill quality, and the commissions (no zero commission gimmicks). Market makers (Citadel) would be largely obsolete, which is why they are vehemently fighting this proposal (with very dubious arguments and scare tactics).
In my view it's hard to argue why there must be a middleman with special conditions (lower tick sizes than the average citizen is allowed) who is allowed to harvest earnings from the trades of others because of some privileged entitlements. In global electronic trading, market makers are obsolete. Everybody can be a market maker. Everybody should be allowed the same conditions. Citadel should die.
 
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Very interesting discussions here!

I have been thinking about this for a while. Assuming I am trading with MMs what do they see and want to do with my (and everyone’s) orders? As retail traders we are definitely at a disadvantage, basically like in a situation where we are exposed and our counterparts are lurking in the dark.

There never will be true transparency in such a situation. Now the question is how do we protect ourselves as much as we can? I think market orders are always “good order flow”, i. e., not toxic flow for MMs so they always get executed. My experience with market orders has been mixed. Sometimes I get better prices than I expected and other times the fill prices are worse. In general, bad fills are much worse than good fills so overall it’s against us. For example, good fills may be a few cents better but bad fills are tens of cents worse, especially when market moves quickly. And that’s when you have to use market orders if you really want to get in.

As for round numbers, if I get filled at a round number the price will go over it almost every time. If it’s not filled the price will never reach it. So in this case we are also disadvantaged. I am not sure how to deal with this as a retail trader. Guess we just have to suck it up and gain a significant edge.
 
Jzwu2017 said:
Very interesting discussions here!

I have been thinking about this for a while. I think market orders are always “good order flow”, i. e., not toxic flow for MMs so they always get executed. My experience with market orders has been mixed. Sometimes I get better prices than I expected and other times the fill prices are worse. In general, bad fills are much worse than good fills so overall it’s against us. For example, good fills may be a few cents better but bad fills are tens of cents worse, especially when market moves quickly. And that’s when you have to use market orders if you really want to get in.

As for round numbers, if I get filled at a round number the price will go over it almost every time. If it’s not filled the price will never reach it. So in this case we are also disadvantaged. I am not sure how to deal with this as a retail trader. Guess we just have to suck it up and gain a significant edge.
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SOUNDS like semi liquid stuff, some of which i trade or invest in;
if execution is such a big deal to you + I prefer some good ones also, SPY =liquidity leader.
Overall with plenty of trend study= its for us, not against us ;
but i would not expect some one or MM to do business with me + lose money all the time LOL:D:D
I seldom if ever use market orders for entry, some times pay UP with limits orders ;
exits fine for market orders about 80% .
 
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