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As you will see, this information is easy to understand and the tools are easy to use. You need to know what tools are available and where to find them. Let's get to work. |
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Payment for Order Flow Broker |
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The dominant order handling method is called payment for order flow. It is practiced by all but a handful of the almost 200 online brokers in existence today. |
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This method is slow and does not get you the best execution price. The brokers who practice payment for order flow do not provide you with the trading tools used by professionals and active traders. In most cases, they don't even provide you with real-time data. |
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What they do, however, is decide where your order will be executed. They send your order to a trading firm that will pay them for your order instead of to the place where you will get the best price. Does that sound good to you? |
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Figure 6.1 shows the payment for order flow process. It can be summarized as follows: |
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Step 1. You decide to buy 100 shares of XYZ. The quoted price that you see is 40 bid and 40 1/4 ask. You don't have access to information about the depth of the market, and you can't be sure that you are seeing the very best prices available. |
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Figure 6.1
Payment for Order Flow Process |
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