Prior to becoming a trader for myself, I had a career as both a broker and a trader for a brokerage firm. As I look back on that experience, I am thankful for many of the things I learned about people and the markets. One of the most important things I learned was about order flow and routing.
For those of you who are not familiar with how the order process at a traditional brokerage works, your order is not directly routed to the markets for process. When your broker contacts you or vice versa, your order is taken and handed over to the trader at the brokerage either electronically or via paper as it was when I was in the business. The trader will then send the order electronically to a market maker for fulfillment.
Market makers are brokerage firms that have agreed to provide liquidity in the markets. They stand by, willing to purchase or sell stock so that investors and traders can find liquidity in the markets. They also fill orders for their own customers. As market makers are businesses themselves, they are interested in making profits.
When I received an order… Continue Reading
