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you try a cable modem or DSL you will never again settle for anything slower. It's like the difference between driving on a congested two-lane highway versus whizzing along on a five-lane freeway. |
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While we're discussing the speed of connection, let's mention a related issuewhat happens when you place an order to your brokerage house, as this is related to the type of software the home trader has to choose from. |
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It is useful for new and occasional investors to understand how the technology works when you enter an order using an online browser versus electronic direct access. It is logical to assume that an order you place is going directly into the system, heading toward a market maker or specialist. But this is not at all how it works. |
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Let's say, using a typical telephone or cable modem connection with a browser-based discount broker, you make a decision to buy 100 shares of Dell. You see a price you like, fill out the order form, and click to enter an order with your brokerage of choice. What happens to your order? |
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Your order is like an e-mail message, which is delivered to your broker. Brokers do one of two things when they receive it. They may work the order on their own trading desk, stepping between you and the larger market. In other words, they use their own supply of stock to fill your order. You are charged the normal commission per trade and your order is filled. This fill shows up on your screen as soon as it takes place. |
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The second thing they may do is sell your order to a wholesaler, or a "broker of brokers." This wholesaler pays your broker for this order being sent his or her way. Your broker gets this small fee in the form of the spread between whatever price you are paying and a slightly reduced price the wholesaler is paying. |
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This means that your broker is being paid twice: a small amount from the wholesaler and the commission amount you are paying. This spread that is paid by the wholesaler to your broker becomes significant when multiplied thousands of times from all the orders being sold to the wholesaler. |
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The point of this explanation of the routing of your order is to show that you don't really have direct access to trade with other traders when you go through a typical browser-based system. This is by far the most common system for online investors and is used by |
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