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If you are a long-term investor, you can take this tutorial with a grain of salt. At least now you have some insight into how electronic systems give direct access to the market. We hope this has enlightened your outlook and helped you achieve a greater understanding of how the execution of stock orders is done. For those who are looking to become a trader, this is the tip of the iceberg and we'd advise you to do a lot more research in this area before jumping in.
Let's recap what we have learned:
- The NYSE is an auction market and uses specialists to trade securities.
- The Nasdaq is an OTC market where trading is facilitated through market makers.
- Each stock listed on the NYSE is allocated to a specialist who matches up buyers and sellers, provides liquidity and finds the fair price at the beginning of each trading day.
- A market maker provides continuous bid and offer prices within a prescribed percentage spread for shares in which they are designated to make a market.
- SuperDOT system is an electronic system used to place orders for stocks on the NYSE.
- ECNs network major brokerages and traders, so that they can trade between themselves without involving a middleman.
- SOES is an automatic order execution for individual traders with orders less than or equal to 1,000 shares.
- There are three levels on the Nasdaq that vary on the amount of information and access they provide to investors.
Table of Contents
- Electronic Trading: Introduction
- Electronic Trading: The Nasdaq Vs. The NYSE
- Electronic Trading: The Role of a Specialist
- Electronic Trading: The Role of a Market Maker
- Electronic Trading: SuperDOT
- Electronic Trading: Electronic Communications Networks (ECNs)
- Electronic Trading: Small Order Execution System (SOES)
- Electronic Trading: Level I, II and III Access
- Electronic Trading: Conclusion
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