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Posted On: 04/10/2017 1:07:33 PM
Post# of 41414
That's called the Spread. The 4-letter abbreviations represent the financial institutions that act as Market Makers. For example, ETRF = Etrade Financial. CDEL = Citadel Securities (a very large hedge fund). As you can see, Fidelity doesn't appear on the Bid side because of the restriction. And because market makers are required to maintain Bid and Ask simultaneously, if you DO see Fidelity appear on the Bid, it's only because they're obligated to when their clients sell BLTA. In this case, Fidelity is only acting as the middle man, not the buyer.
CDEL, as far as I know, doesn't offer the same services as Etrade/Fidelity, so you can't open a traditional trading account with them. They do their own automated trading, as market makers. So what happens is that John Smith decides to sell his shares of BLTA through his brokerage account, and CDEL may act as a representative of those shares. So CDEL takes your shares and goes to the Ask with the offer for potential buyers.
As to how it's determined which market maker handles which shares, it depends on where the shares being sold are coming from. Etrade handles its own transactions and doesn't go through a market maker like CDEL. But if you're using some weird offshore broker, or a very old school telephone-based broker based out of some small town in Utah, then you might be selling your shares through an institution like CDEL.
Next, the question is: why do market makers do this? What's in it for CDEL? Take a look at the Ask. See CDEL sitting at .0053? And on the Bid, it's .0051? Every market maker must maintain a Bid and Ask, this is how the "market" is created in the absence of individuals like us buying/selling shares. I suspect that CDEL is buying shares on the Bid and flipping them on the Ask for a small profit. This is how some institutions, even large ones, make money.
Furthermore, let's ask: what happens in a world without Market Makers? Liquidity drops substantially. No liquidity = no trading = no market.
If anyone wants to clarify/correct my comments, please do so.
That was far more than you were asking for, but there ya go.
CDEL, as far as I know, doesn't offer the same services as Etrade/Fidelity, so you can't open a traditional trading account with them. They do their own automated trading, as market makers. So what happens is that John Smith decides to sell his shares of BLTA through his brokerage account, and CDEL may act as a representative of those shares. So CDEL takes your shares and goes to the Ask with the offer for potential buyers.
As to how it's determined which market maker handles which shares, it depends on where the shares being sold are coming from. Etrade handles its own transactions and doesn't go through a market maker like CDEL. But if you're using some weird offshore broker, or a very old school telephone-based broker based out of some small town in Utah, then you might be selling your shares through an institution like CDEL.
Next, the question is: why do market makers do this? What's in it for CDEL? Take a look at the Ask. See CDEL sitting at .0053? And on the Bid, it's .0051? Every market maker must maintain a Bid and Ask, this is how the "market" is created in the absence of individuals like us buying/selling shares. I suspect that CDEL is buying shares on the Bid and flipping them on the Ask for a small profit. This is how some institutions, even large ones, make money.
Furthermore, let's ask: what happens in a world without Market Makers? Liquidity drops substantially. No liquidity = no trading = no market.
If anyone wants to clarify/correct my comments, please do so.
That was far more than you were asking for, but there ya go.
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