UPDATE ON SEARCH FOR AN ONLINE BROKERAGES
In the August and September issues of my newsletter, I indicated my search for low fee brokerages that were also compatible with the direct order placing platform within the QuoteTracker (QT) software. The reasons were three-fold. First, paying as little as possible in commissions. Second, when watching the markets to invest, being able to monitor less "stuff" on the computer screens. Third, being able to execute a variety of buy, sell orders for stocks and options, and at the same time know your trading account balance or buying power all within the QT menu. Very convenient in other words.
My feedback you are about to read is very positive. Please be advised that I have no working partnership or financial interest with MB Trading. I'm just sharing with you what I have discovered on my own from first hand experience. I will also discuss some "behind the scenes" information for those astute investors that are geeks like me.
WORKS WITH QUOTETRACKER:
I read on the medved.net web site the list of brokerages they recommend. I reviewed all of them to see which had the most competitive rates. mbtrading.com was listed as compatible with the QT platform. They only charge $1.00 per option contract with no minimum and no "per ticket" charges! I filled out the ACAT paperwork and started to transfer some of my trading funds into MB Trading. It took about 3-days and the interaction with MB representative was excellent. Very professional and delightful woman. Everyday, she would send me an email with the status of the new account.
MAKING DEPOSITS INTO ACCOUNT:
EFunds payment transfers funds from your bank(s) into your trading account at MB Trading. Now get this! What really surprised me was the very next trading day the funds were ready for trading in the account. My last brokerage required a full five days before you had access to the funds. The only limitation is you can not withdraw those new funds from the trading account for five days. It must have to do with check clearing.
LIGHTING FAST ORDER EXECUTIONS:
The 2004 Barron's Online Broker Survey rated MB Trading a 4.8 out of 5 stars in executions. MB Trading touts their one-button MBTX Smart Routing system for Stocks, Futures, Options. My personal experience so far? Let me say this. BE VERY CAREFUL!
Indeed, their order placement is faster than you can blink your eyes! No lie! They have an order placement system on steroids when combined with QT. I was blown away with the rate of speed with order cancellations and order placements.
MB Trading claims since the year 2000 they have "saved our clients over $8,365,234.12!" I'm pleased to announce that they have proved that claim to me. I placed a limit sell order in which I had determined the fair price of the option myself. The QT had triggered a BTC signal on the charts and the market were taking off. The current bid/Ask prices when I entered my order was .10 cents off my calculated option fair value price. That is why I stress to my WINs subscribers to know what the fair value price is BEFORE you do any trading.
Like many of us that have chased our entry/exit limit price and sometimes settled for less, I was not expecting a order fill at that point. So it seemed, according to the QT screen quote the bid/ask was nowhere near my limit sell order. Shortly, afterwards I had to do a double-take on the computer screen and clear my eyes. I could not believe the fact that my limit order had been filled at my original price. Hey, we are talking about an extra $250 in my pocket on this one trade.
There are a few possible answers on how that could happen. First, between the bait and switch games the market makers play in the course of the quoting process, a better bid/ask appeared and the middle man was elimited. Second, the time delay between the action on the trading floor and what we read on the last bid/ask on our computer screens may distort the true price for a while.
MBTX scans the market to find the best available price and venue to execute your orders. According to MB Trading, these savings are computed as the difference between the fill price and the best bid (on a sale), and the fill price and the best offer (on a buy). Again, that's what happened to me much to my delight. MBTX intelligently harnesses the power of direct access trading by scanning market makers, ECNs, exchanges and hidden pools of liquidity for the best available execution. MBTX routes for execution against liquidity on passive ECNs, finds liquidity with market makers, and then uses a combination of active ECNs and SuperSOES.
HOW MB TRADING CAN PROCESS YOUR ORDERS:
Example 1: An order is placed to buy 1,000 XYZ when the market shows two ECNs offering 300 shares and a market maker offering 400 shares. Normally, three orders would have to be placed on three different routes to get filled as quickly as possible. If only ISLD was used (or any other passive market participant), then the order would sit until a crossing order came along. MBTX, on the other hand, scans the market, finds the different combinations or sources of available liquidity, and routes to the appropriate venue(s).
This helps explain slow orders at some of the brokerages our readers use. There may be a "conflict of interest" because they get payment for steering order traffic to certain ECNs. They act as traffic cops of your orders.
An order is placed to buy 1,000 XYZ at $20.00 and ISLD and ARCA are both offering 1,000 shares at $20.00. A trader would normally route the order via an active ECN and get filled completely at $20.00. However, frequently there are non-active ECNs like ISLD or other hidden liquidity pools that are offering a better price than displayed on Level II. In this example, lets say that ISLD was really willing to sell 500 shares at $19.995. The trader would not have received that price improvement - unless he/she first somehow found the "hidden liquidity", then sent a 500 share order to get that price improvement, and then traded the remaining 500 shares on an active ECN. Doing so would return a price improvement - but, would also create two commissions.
Because MBTX scans the market, it first would have found the better price and executed 500 shares at $19.995, and then automatically routed the remaining 500 shares to destination at $20.00... without creating multiple commissions and giving a $2.50 price improvement. MBTX scans the market and seeks the best price in the fastest possible time.
As a final note, many of the existing online brokerages are too expensive. They spend more on fancy ads to draw in customers when they should be lowering their ridiculous high fees. So far, this brokerage seems to want new business. Check them out.
SOME RECENT MARKET HISTORY:
Since 1975, there has been a movement in this country to move away from the people centered "market makers" or trading floor experts called "specialist" to more computer based Electronic Communications Networks known as ECNs. Reason? More competition for a more level playing field for all investors.
1975 - Congress calls for National Market System to spur competition.
1987 - "Black Monday" - Post-crash regulation promotes electronic trading.
1996 - SEC approves Order Handling Rules.
1997 - NASDAQ integrates ECNs, minimum quote increments lowered to 1/16s, markets
agree to decimalize.
1998 - SEC approves standards for new exchanges and alternative trading systems.
1999 - NYSE Rule 390 abolished.
ECNs have become integral to the modern securities markets, providing investors with enhanced flexibility and reduced trading costs, as well as competition to the established securities exchanges and the Nasdaq Stock Market.
In simplest terms, ECNs bring buyers and sellers together for electronic execution of trades. The Commission has defined an ECN as any electronic system that widely disseminates to third parties orders entered into it by an exchange market maker or over-the-counter ("OTC") market maker, and permits such orders to be executed in whole or in part.
The definition specifically excludes internal broker-dealer order-routing systems and crossing systems – i.e., systems that cross multiple orders at a single price set by the ECN and that do not allow orders to be crossed or executed against directly by participants outside of the specified times. There currently are nine ECNs operating in our securities markets: Instinet, Island, Bloomberg Tradebook, Archipelago, REDIBook, Strike, Attain, NexTrade, Market XT, and GFI Securities.
ECNs have a wide variety of subscribers, including retail investors, institutional investors, market makers, and other broker-dealers. ECNs provide many market services to these subscribers. For example, ECN subscribers can enter limit orders into the ECN, usually via a custom computer terminal or a direct dial-up. The ECN will post those orders on the system for other subscribers to view. The ECN will then match contra-side orders for execution. In most cases, the buyer and seller remain anonymous to each other, with the trade execution reports listing the ECN as the contra-side party. In addition, subscribers may use such features as negotiation or reserve size, and may have access to the entire ECN book (as opposed to the "top of the book") that contains important real-time market data regarding depth of trading interest.
In 1975, Congress directed the Commission to facilitate the development of a national market system for securities ("1975 Amendments"). At that time, Congress was concerned about the trading fragmentation and poor customer executions resulting from the trading of securities in separate, unconnected markets.
The 1975 Amendments, as reflected in Section 11A of the Securities Exchange Act of 1934, were designed to set forth a framework in which competing markets would be linked together in ways that would produce the best prices and efficient executions. This framework included three minimum components. First, exchanges and dealers would publish both the prices at which they were willing to trade and the prices at which stocks were traded.
Second, linkages between markets would assist customers in obtaining the best prices available for their orders in any market and encourage the best market prices to emerge. And third, broker-dealers would remain obligated to seek best execution of their customer orders. The Commission was charged with facilitating these goals while allowing maximum flexibility in the design of the national market system. An essential concept of a national market system was "to make information on prices, volume, and quotes for securities in all markets available to all investors, so that buyers and sellers of securities, wherever located, can make informed investment decisions and not pay more than the lowest price at which someone is willing to sell, or not sell for less than the highest price a buyer is prepared to offer.
When ECNs first developed, however, they were not integrated into the national market system, but primarily served as private trading vehicles for institutional investors and broker-dealers. Over time, as these subscribers posted prices in ECNs that were better than the prices they were posting in Nasdaq, the public quote became less reliable and the market became fragmented. This led to artificially wide spreads in the public markets. As a result, many investors, particularly retail investors, were receiving executions at prices inferior to those displayed by market makers and other subscribers on ECNs. This essentially
created a two-tiered market – the traditional public market, and the new ECN market with better prices and limited access. We all have benefited from the changes in the SEC regulations.
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