Tagged: Ameritrade

Retail Reality

Do retail investors matter?

Depends what you mean. They’re important and valuable as investors. I once headed investor relations for a company with thousands of retail holders. I was president of an IR services firm that focused on retail-targeting strategies.

But when people ask me if retail investors have a chance in the market, my answer is monosyllabic: No. Scottrade, the online brokerage, runs ads featuring clients claiming that “I don’t trade like everyone else. I trade like me.” That seems to suggest retail traders can craft unique schemes that stand apart. While it’s theoretically conceivable for a retail order to price the market under rules requiring “market” orders to meet at the best national offer to sell, in practice it’s remote. Retail orders are passengers on market trains.

I’ll explain. Scottrade says in its order-routing filings that 100% of its trades are non-directed – they don’t specify execution venues. The average Scottrade customer is thus statistically most likely to trade not like you or me or him or her, but like Knight Securities, since that’s where a quarter of Scottrade orders go.

Another chunk from Scottrade lands at Citadel, the high-speed hedge-fund owned platform. Citigroup gets the largest portion but it’s divided between limit orders at Lavaflow, Citi’s fast-trading facility, and market orders at Citigroup’s agency desk (suggesting Citi powers arbitrage).

About 15% of orders shoot through Direct Edge, the high-frequency-trading exchange that’s merging with BATS, another sizzling execution venue. And for options and futures and NYSE stocks, about 7% of Scottrade’s orders route to G1 Securities that until recently was owned by rival E*Trade, which has sold it Susquehanna, a quantitative trader. Yup, folks who hoped to “trade like me” were actually trading like E*Trade. (more…)