Trading is tough enough without having to fight your broker isn't it?Make sure you have the right relationship with your online brokers. It is NOT true that they want you to lose - but it IS true that sometimes they make more money when you do lose. What they make and how they make it doesn't really matter to us as long as we all know the rules of engagement and win, lose or draw we get the same level of service and execution. If you ever thought that may not be the case and that maybe the quotes were getting a tad tardy or your broker was being a bit less helpful just take a moment to read this timeless story below and make sure you don't recognise your broker:
St Louis Bucket Shop – 1920’s
“Just come over here Livingston, will yeh? Do yeh see them?
See What? 
“Them guys. Take a look at em kid. There are three hundred of em! Three hundred suckers! They feed me and my family. See? Three hundred suckers! Then yeh come in and in two days yeh cop more than I get out of the three hundred in two weeks. That ain’t business, kid – not for me! I ain’t got nothin’ agin yeh. Yer welcome to what ye’ve got. But yeh don’t get any more. There ain’t any more here for yeh!”
“why, I........
“You look here Livingston” he said “I’ve heard all about yeh. I make my money coppering suckers bets’, and yeh don’t belong here. I aim to be a sport and yer welcome to what you pried off’n us. But more of that would make me a sucker, now that I know who yeh are. So toddle along sonny!”
This is an extract from “Stock Reminiscences of a Stock Operator, Edwin Lefevre” but much of it holds today.
The game is the same – online brokers mostly “warehouse” or “b-book” retail trades. This is not illegal and they are accepting your trades (and risk) so offering a service but just know they love a sucker and .... well sometimes are not so fond of a winner. If your quotes slow or your trade size is limited you know you’ve been spotted and hopefully you are a winner.It figures doesn’t it? These retail online execution only brokers offer spreads so tight and commission so low (or free) that if they hedged every little itty bitty retail trade they would lose a fortune so they go with the assumption that most private retail traders lose in the end – they do I’m afraid. So they never hedge or offset your trades – some match or hedge themselves – meaning the bookie (or broker ;-) ) makes the spread – nice business and the net prevailing position from the retail traders – well normally it works for them and they win on the opposite side of your trades.
That’s all ok folks – we get great prices and great systems and they make some money and if they lose - well that’s their lookout. Let’s make it clear, online execution-only brokers have been a great thing for the private trader – our execution costs are a fraction of what they were 20 years ago.
When it’s not ok – is if your broker suddenly treats you differently when you win. When the quote slows or you can’t get on or worse – you can’t get out – this is their favourite trick - they reduce the trade size so you have to execute on the phone or in many trades online. Any of these and more - STOP – that just ain’t fair and as the St. Louis says above “that ain’t business – not for me!”. Move your account immediately . There are plenty of brokers who won’t do this so trade with one who doesn’t seem to mind you winning. Play the game guys – even be a sucker if you have to be – but make sure you play on a level playing field.
Mama knows her markets
Mamamarkets
