An NYSE Scalper's Tale - A Trader's Diary

Tuesday, March 06, 2007

More ECN Talk

Gross: +$810.00
Net: +$729.55
Loss From Top: 0
Trades: 54
Shares Traded: 135400

Stocks Traded Today (net profit/loss):
Taiwan Semiconductor (TSM): +$334.87
NovaStar Financial Inc. (NFI): +$152.36
Cooper Tire & Rubber Company (CTB): +$126.97
Citigroup Inc. (C): +$114.81
EMC Corporation (EMC): +$74.90
Pfizer Inc. (PFE): +$50.56
Advanced Micro Devices Inc. (AMD): -$9.02
New Century Financial Corporation (NEW): -$10.86
CBS Corporation (CBS): -$50.22
The Goodyear Tire & Rubber Company (GT): -$54.81

Sorry to bore you folks with yet another post about ECNs, but there were a few excellent questions posted in the comments section of yesterday's post that I'd like to address in this post. If this stuff doesn't interest you, you can scroll about 2/3 of the way down where I do my recap of my day.

I was quite surprised at the level of interest in the various ECNs in yesterday's post that I thought I'd answer a few of those questions along with a few more things I learned today.

Firstly, someone asked yesterday:

"One question, if you use MILN passthrough and your order gets routed to the NYSE, will NYSE not route it out if there aren't enough shares available?"

Today I found out that yes, if you use Millennium Pass-Through and your order is routed to the NYSE, the NYSE may route your orders to other market centers.

In fact, I found out that if this were to occur, Millennium will charge you 0.0027 cents per share! What's probably happening here is that the NYSE will charge Millennium the new 0.0025 cents per share routing charge and Millennium will pass that charge along to you and on top of that, they'll charge you an extra 0.0002 cents per share.

After I found this out, I stopped using Millennium Pass-Through, simply because it's even WORSE than the 0.0025 cents per share that the NYSE will charge. And besides, Millennium is dreadfully slow in both routing to the NYSE and in cancelling orders.

And in other developments....

The programmers at the prop firm adjusted the INET RASH DOTD I was telling you folks about yesterday so that you can now remove liquidity with it. I also found out what the fees for using this ECN would be and it's actually quite good!

Again, INET RASH DOTD will bypass all of the various books (Arca, INET, Nasdaq) and will send your order directly to the NYSE. What's good about it is that if the NYSE doesn't route your order, then it's actually quite cheap! In fact, it's about 1/3 the cost of using ISI (so it should be about 0.001 cents per share...if anyone knows, please correct me on this).

The only problem would be if the NYSE does route your order to other market centers, then you'll have to eat that 0.0025 cents per share charge.

However, I heard that the percentage of orders that are routed by the NYSE is relatively low, so using INET RASH DOTD may be a great ECN to use in the meantime....I'll have to double check some stats to see if this is in fact true.

Another problem is that there is no real-time way of knowing how many shares were routed by the NYSE and as a result, the P&L's may not be correct. The prop firm I work for stated that adjustments to our P&L will occur a few days later after they receive the tally of the number of shares that were routed by the NYSE and will reflect the number of our shares that the NYSE routed.

Thus, I will not know if my P&L has taken into account that 0.0025 cents per share fee on my orders or not. Again to review, I'm charged 0.0025 cents per share if I send an order to the NYSE and they route it away to other market centers (Arca, INET, Nasdaq, etc).

Another commenter also asked:

"Please let us know more about this new ECN that charges the low fees once you get a chance to use it..

thanks in advance,
Dave Parizek"

What I can tell you is that this new ECN is called INET RASH ISNY.

And what it will do is it will act like a fill-or-kill order, meaning that once you send in your order, if there are shares available, it will fill you, however if there are not enough shares available, it will partially fill you and cancel the balance. Finally, if you send this order and no shares are available, it will automatically cancel.

INET RASH ISNY can only be used to remove liquidity and it WILL NOT BE ROUTED BY THE NYSE! That's excellent news - at least we will not have to worry about that 0.0025 charge.

What's more.....it's going to be dirt cheap to use it! It'll only cost you 27 cents per 1000 shares to use (or 0.00027 cents per share). Ohhhhhhh man! I'm gonna love using it!

And you know that since it's an INET RASH order, that it's gonna be fast!

I'm loving it already! It's fast, it's cheap, and it's exactly the kind of thing I do anyways (i.e. if I get partially filled, I quickly try to cancel the balance of my order).

Apparently our prop firm is all setup and ready to use it.....but we are waiting for NASDAQ (the owners of INET) to complete implementation on their end.

I was told that the earliest we could get INET RASH ISNY is possibly this Thursday. I can't wait!

But for now, I'm going to continue to use INET RASH DOTD to punch into a position (and hope my orders don't get routed by the NYSE) and I'll continue using Arca or INET to exit my positions by adding liquidity. Of course, I may use INET RASH DOTD to exit my position if prices start running away from me.

Just remember that if you have any questions or concerns about the new NYSE Hybrid Market, you should definitely check out the HybridTalk blog. Just do a search and you should be able to find what you're looking for. Otherwise you can ask a question and Ray over there at HybridTalk does an excellent job of answering questions and explaining them in layman's terms.

Okay - enough of the ECN talk....

This morning I had to get re-adjusted again with using the various ECNs and the fees associated with them.

It might have been the fact that I was so concerned with how these new fees would affect me that I remained fairly patient when it came to waiting for a good trade (since I didn't want to waste fees putting on a lousy trade).

Early in the morning I continued to use Millennium Pass-Through for my orders, but by about mid-morning I stopped using it after learning of the fees.

I missed a golden opportunity early in the morning because of the "slowness" of Millennium.

I was watching Taiwan Semiconductor (TSM) on the open and I was waiting for the $10.50 level to break. When it looked imminent it was going to break, I used Millennium Pass-Through to go long 20,000 shares @ $10.50....

Unfortunately, by the time Millennium routed my order to the NYSE, pretty much all the shares were gone and I only got partially filled for 3400 shares. All I could do was watch the size on the offer at $10.50 shrink....700....500...250....100...and finally when the size was around 40, I started getting filled. I could have smacked that level at least 3 times with other ECNs!

Well TSM quickly ran up 15-cents from there....oh well, at least I caught some of that move with some shares.

But for the rest of the day, I was quick to book my winners because of the shaking and baking that seemed to be occurring today. More importantly, I dumped my losers even quicker.

If I got into a position and it stalled for a bit, I'd quickly get out. Or if I got into a position and it went in my favor, but started coming back, I'd punch out for break even.

The result of this were a lot of 4, 6, or 10 cent winners versus a lot of break even or 1-cent losers.

One good trade versus no bad ones.

Anyways, I hope the last two posts gives you more insight into what a micro scalper like myself has to consider every day that I trade....where every penny counts and every fraction of a cent per share makes a big difference in everything I do. Welcome to my world!

Good Trades
9:38:35AM - Taiwan Semiconductor (TSM) had opened and began testing resistance at $10.50. I waited for it to break and when it did, I tried to send a Millennium Pass-Through order for 20,000 shares to get long. Well, it seemed to take forever before I started getting filled...by that time, hardly any shares were left and I got partially filled for 3400 shares. TSM quickly went up, but started falling back down again, at which point I took everything for a 9-cent winner
($306 profit before fees ; Long 3400 shares @ $10.50 ; Out: 9:42:07AM)



Bad Trades
None.

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14 Comments:

  • When you talk about the fees for ECN routing, do you mean .0025 cents (which would mean multiplying shares by .000025 and result in negligible fees) or $.0025 which means multiplying shares by .0025?

    By Anonymous Anonymous, at March 06, 2007 6:55 PM  

  • Anon@6:55PM,
    Thanks for your comments. When I talk about that 0.0025 NYSE routing fee, it's on a per share basis. This means it will cost you $2.50 on 1000 shares and $5 on 1000 shares round trip. Most of the fees you see in this particular post are on a per-share basis.

    This new NYSE routing fee is fairly expensive when you consider the same transaction used to cost 0.000225 cents per share or only $0.225 on 1000 shares and $0.45 on 1000 shares round trip.

    Also keep in mind that these fees probably don't apply if you are using flat-fee trading or if you use a broker (or online trading)....these fees are mainly for those trading in prop firms....

    Hope it helps!

    By Blogger J.C., at March 06, 2007 7:02 PM  

  • Can I ask you what you consider a significant level break? You've mentioned the term several times, but I am not exactly sure what levels you consider more significant then others. I do have an idea, but don't want to assume. BTW, thanks for posting a copy of your journal a way back. It was very helpful!

    Thanks for your help!

    Jim

    By Anonymous Anonymous, at March 06, 2007 8:50 PM  

  • Hi J.C.,

    I would like to where/know how do you get the graphs to show your trades.

    Has the spreads narrow for the NYSE stocks since the hybrid and nms project?

    Thanks.

    By Anonymous Anonymous, at March 06, 2007 8:58 PM  

  • Jim,
    Thanks for your comments. Usually what I look for in a good level break is the following:
    1) It's at a round dollar number or other significant prices. This will vary from stock to stock. Lower priced stocks may have levels at $10.00, $10.25, $10.50, $10.75, $11.00, etc, while a higher priced, faster moving stocks may be at $80.00, $85.00, etc.

    2) The level has significant size on it. In the trade on TSM today, there was 1000+ size on the offer at $10.50 (meaning there was 100000 shares available at that price). The size on the level must be significant compared to what's normal for the stock

    3) Either it's the first time the stock has approached this price level or it has been testing the level but has yet to break

    I'll also consider a level break if a stock has been in a tight range that is bound by big sizes on either the bid or offer. For example, let's say for the past two hours a stock as been moving up and down between $10.50 and $10.60 and let's say that there is big size on the bid at $10.50 and there is big size on the offer at $10.60. Then a break of either level ($10.50 to the downside and $10.60 on the upside) as a level break.

    Finally, I just wanted you to be wary of "fake" sizes that either suddenly appear or that appear and disappear...this usually indicates that someone is playing games on the Level 2 and is trying to influence prices (even though it's illegal to do so, but people seem to do it anyways).

    Hope it helps!

    Anon@8:58PM,
    Thanks for your comments. The graphs I use in my posts are from www.bigcharts.com. I use their "Advanced Charts". Keep in mind that I don't use these charts to trade off of (I use eSignal at the prop firm).

    As to whether the spreads have narrowed since Hybrid....I think it really depends on the stock you are trading, but the stocks I usually trade normally only have a 1-cent spread. One thing that I have noticed with Hybrid is that prices now move more choppily and sometimes big orders can really turn a stock around on a dime....I can definitely say that Hybrid has made the NYSE much much faster!

    I hope it helps!

    By Blogger J.C., at March 06, 2007 9:29 PM  

  • Correct me if i didn't understand it correctly, only using prop firm will you need to pay these high fees, not sure i understand the logic of it. why?

    Second, may i ask what the benefits you are getting from your prop firm that make you stay there and not trade for yourself only using your own money, Though you might have less but with margin accounts you can get a nice buying power available to you.

    thanks, i enjoy reading your blog.

    By Anonymous Anonymous, at March 06, 2007 9:48 PM  

  • Anon@9:48PM,
    Thanks for your comments. At a prop firm, you pay much lower fees than others who use a broker or who do online trading.

    As an example, many online trading companies advertise things like "$9.99 per trade", but at a prop firm, your trades cost you very little...maybe less than $1.

    As you can see, today I had 54 trades. If I traded on my own with my own money and it cost me $9.99 a trade, I would have $539.46 in trading fees.

    But at a prop firm, my trading fees were only $80.45 (Gross - Net) today.

    Also, if I used my own money, losing days will hurt a lot more because then it affects my buying power.

    Currently at my prop firm I have a buying power of $900,000. Let's say that one day I lost $200,000...well the next day when I come in to trade at the prop firm, my buying power would still be the same.

    So in short, the reason I stick with a prop firm is:
    1) Trading fees are much much lower than what I can get outside
    2) My buying power remains the same no matter what happens - thus there is less risk for me
    3) I rather enjoy conversing with the other traders and others who are knowledgable in the field...I think if I were at home trading, I'd get kinda lonely

    Maybe when I get really good at this and when I learn to really hold onto big winning trades, then maybe I'll start trading on my own. In fact, when I started at the prop firm, that was my eventual goal - to trade on my own. But for now, I still need to continue learning.

    I hope it helps and good luck!

    By Blogger J.C., at March 06, 2007 10:09 PM  

  • I appologize if this has been asked before. It seems you have been doing this long enough to get a feel of what percent people are failing out or succeding at prop trading. At least from your view of where you are trading.

    Thanks
    MillionPips

    By Blogger MillionPips, at March 06, 2007 11:13 PM  

  • Hi JC,

    I was just wondering... I am trading 600 lots @ .01 in and .01 out. This seems to be way more than you are paying. I am doing around 300,000-400,000 shares monthly. Is your cost structure based on number of shares per month. Do you recommend me moving on to another firm with better pricing? Great blog, i can really connect with you because we trade a very similar style on NYSE.

    Thanks

    By Anonymous Anonymous, at March 06, 2007 11:26 PM  

  • hi,jc
    I had been tell that if using ISI,NYse will charge us $2.5 per order regardless how many shares,not 0.0025 cent per share.
    I don't know which is right?

    By Anonymous wj, at March 07, 2007 6:00 AM  

  • I am new to your blog, so not sure if you posted this before? How much capital do you have in your account for trading?

    By Anonymous Anonymous, at March 07, 2007 9:49 AM  

  • Millionpips,
    Thanks for your comments. At the prop firm where I work, I've seen a lot of people come and go. I would probably estimate that 75% - 85% of the people I see there eventually leave either because they cannot make money or because they cannot make enough money. Hope it helps!

    Anon@11:26PM,
    Thanks for your comments. The pricing structure we have is based on the number of shares and based on the number of trades. Your fees may seem high, but I'm willing to bet that you get to keep a lot more of your profits than what I get to keep. I guess there are trade-offs between the various prop firms so I think it will really depend on the kind of trading you do. I hope it helps!

    WJ,
    Thanks for your comments. The NYSE routing charge will be 0.0025 cents per share. So $2.50 is what you'll be charged on 1000 shares. Keep in mind that you will be charged this fee only if the NYSE routes your order away to other market centers. Apparently the NYSE routes orders only about 3% of the time, so I think we won't have to worry as much about the new fee that what I had originally thought. Hope it helps!

    Anon@9:49AM,
    Thanks for your comments. The prop firm I work for does not require me to provide any capital to trade (instead I trade the company's money). In return, the company will recieve a percentage of what I make. The prop firm has given me buying power of $900,000 and if I get better at this, they can always increase it for me. Hope it helps!

    By Blogger J.C., at March 07, 2007 7:58 PM  

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