|
BarterSecurities order flow carries all of the bid/ask spread profit
potential but only a small fraction of the market risk associated with
traditional orders.
BarterSecurities order flow delivers a traditional buy and a traditional
sell order simultaneously (barter order). For example, a barter order might
be to buy $100,000 of IBM and sell $90,000 of INTC, each contingent on the
other. By executing these legs at the same time, you capture profit that is
proportional to the dollar sum of the legs, or $190,000, while sustaining
market exposure that is proportional to the dollar difference between the
two legs, or only $10,000.
Subscribing marketmakers will have an opportunity to respond to barter
orders before they are sent to the national marketplace. However, some
BarterSecurities order flow will be matched against other retail orders that
are internal to the system. Many pending limit orders may need to be
combined to make one execution. For example, an order to sell IBM and buy
INTC, an order to sell INTC and buy CSCO, and an order to sell CSCO and buy
IBM, could form a three-way internal match. Accordingly, a marketmaker who
wishes to sell CSCO and buy IBM may find that a large circle of barter
orders ending in these two symbols creates a trading opportunity that is
more favorable than using NBBO prices.
The attractiveness of a barter order depends on many variables, including
the dollar difference between the buy and sell legs, the industry closeness
of the stocks, and the liquidity of the two names. BarterSecurities gives
you a toolkit to use, to measure the attractiveness of any incoming barter
order, to customize how aggressively or passively to respond to it, and to
monitor the profitabililty of your customized trading decision rules. For
example, you could write a rule that offers to trade a barter order for 90%
of the current NBBO price spread, in the current NBBO size, whenever the
dollar sizes of the buy and sell legs are almost equal and the two symbols
are in the same industry.
|
