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amount, usually unbeknown to you because the disclosure is couched in vague language in the fine print on the flip side of your confirmation. This practice creates conflicts of interest that are mind-boggling in their impact. |
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Regrettably, payment for order flow has become the basis for the existence of the deep discount brokerage industry. In most cases the only reason the low commissions charged by deep discount brokers are possible is because the brokers are receiving payments for order flow that in many cases exceed by far the commission they are charging you. You may ask how is the payer of the payment for order flow able to make these payments to your broker (which amount to perhaps hundreds of millions annually) and at the same time deliver to you the best possible price to which you are entitled? Your broker can't! |
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Payers of order flow systematically maximize their profits by working against your orders, shaving fractions, and holding back fills to suit their objectives. What the market makers call the national best bid and offer, DAET traders call the worst legally acceptable price your broker can force you to accept. Your broker may have been able to find better execution prices but had no incentive to find them for you, despite the fact that the broker's fiduciary duty is to work in your best interest. After all, your broker didn't want to suffer the economic double whammy of relinquishing the 2 or 3 cents a share received from payment for order flow and possibly spending a 1 or 2 cents a share extra to get you the better price on one of the automated systems. DAET traders know what the real prices are and the correct execution price for their orders. A DAET trader could never tolerate being abused under a payment for order flow mechanism. |
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For whom is your broker really working, you who are paying from zero to $29.95 a trade or the market maker who is flowing back perhaps millions of dollars monthly? You don't have to be a genius to figure where you finish in this two-horse race. The paying market maker could trade with your broker hundreds of times a day while you trade with your broker only several times a year. Which will your brokerage firm favor in |
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