Order Entry and Its Effects
Order entry is regarded as the practice of brokerage firms to direct orders from their traders to other brokers or market makers. This is practiced by small brokers, usually deep discount brokers, who get less than some thousands of orders a day. Today, all the order routing process is done through computer networks, reducing manual intervention.
The order entry practice enables a small brokerage firm to act as a large one. More over this reduces their working cost and also enables them to earn more as Payment for Order Flow (PFOF). Market makers or brokers pay PFOF to brokers, as a compensation for the constant orders coming from these firms. The PFOF rate differs with markets and market makers, from 1 to 5 pennies per share.
Order routing occurs in markets like NYSE, NASDAQ and AMEX, where NYSE and AMEX order routing is know as ‘third market’. Today, order routing is the main factor responsible for the liquidity in lower tier issues. According to SEC rules, the brokerage firm must give its order routing, if any, in its disclosure and also have to inform the same to the trader annually.
The order entry practice enables a small brokerage firm to act as a large one. More over this reduces their working cost and also enables them to earn more as Payment for Order Flow (PFOF). Market makers or brokers pay PFOF to brokers, as a compensation for the constant orders coming from these firms. The PFOF rate differs with markets and market makers, from 1 to 5 pennies per share.
Order routing occurs in markets like NYSE, NASDAQ and AMEX, where NYSE and AMEX order routing is know as ‘third market’. Today, order routing is the main factor responsible for the liquidity in lower tier issues. According to SEC rules, the brokerage firm must give its order routing, if any, in its disclosure and also have to inform the same to the trader annually.
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