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September 1, 2010

The Life of a Trade

By Michael Scotti

To access liquidity in today's equities market, routing is critical. That's true for both retail and institutional orders. You can read a retail perspective on routing in this month's cover story on TD Ameritrade, which sends a whopping 330,000 orders a day into the market. Senior Editor James Ramage jumped on a plane and spent the day in Omaha, Neb. with Ameritrade exec Chris Nagy and his team. His task? Find out how a retail broker handles the intricacies of "best execution." The story focuses on the firm's strategy and approach.

Michael Scotti, Editorial Director

Due to its massive order flow, TD Ameritrade wields a tremendous amount of power in the market with wholesalers. The online broker's mantra is price improvement and that means that dealers are buying and selling inside the spread. That's fine with Ameritrade's clients, but not so good for the dealers taking the other side.

I spoke to a longtime acquaintance--not involved in the cover story--familiar with wholesaling, and he asked me this question: "Is anyone making any money in that business?" If that is correct, it is safe to say that firms are willing to lose a bit now in order to have the opportunity to make money with a more forgiving tape when volume returns.

That said, it is difficult to find anyone in trading who is not rooting for a spike in volume. Business this summer has been slow--really slow. And a tailwind of order flow these next couple of months would be a welcome relief from the doldrums of summer. Let's hope so.

Separately, I can assure you that routing will also be a focus at Traders Magazine's fifth annual conference next month. This year's Traders Magazine Live will once again be thematic: It is entitled "Peeling Back the Onion: Institutional Trading in a Millisecond World." I hope you can join us at The New York Helmsley on October 6. We plan to examine the myriad complexities of equity trading.

One featured panel will review the life of a trade, looking at various order types. The idea is to show what happens to an order--where it goes and how it interacts with the market. I'm pleased once again to have a distinguished panel of speakers this year. On page 48 in this issue you can review the conference topics and speakers. It should be another good show.

Enjoy the issue, and I hope to see you on October 6.

 

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