Mar

11

Let's assume the HFT does take a 1/2 tick out of the market per trade. But reflect back to the good old days when you would call in your orders to the floor. Then the locals would sit on the order for 1-2 minutes allowing plenty of time for front running, and other evil dong, then charge execution commissions of .50bp to 100bp. This was all before decimalization so instead of spread of .01 or .005 on stocks you had spreads of .06 or .25, higher by a factor of 5x. For a stocks or futures trader I will go with current electronic age even with those pesky HFT algos. If I was a floor broker, sure the old days were a lot better, but if you are sitting upstairs today beats by a mile.

Jeff Watson writes: 

But the trouble with the electronic market is that it's harder to know the size of the market (ie: how much wheat is really for sale in the pit). Plus, the electronic market eliminates the visual and auditory clues that one would get in the pit. The feel of the grains has changed significantly since electronic became the mainstay, but a bad fill is a bad fill, and your market order can get you a bad fill.

Gary Phillips writes: 

Floor brokers in the bond pit were under extreme pressure to provide institutional customers with good fills

Brokers were only as good as their last fill…

Good fills were taken for granted, but fills that were perceived as bad, were always acknowledged and then contested.

Adjustments for bad fills were de rigeur, if a broker wanted to retain his business.

But when a broker had an error, he had to eat it himself.

The risk /reward was definitely skewed against the floor broker.


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