Stocks & Commodities V. 23:10 (53): Q&A by Don Bright SINCE YOU ASKED Confused about some aspect of trading? Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. To submit a question, post your question to our website at http:// Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. DAYTRADING: MARK-TO-MARKET OR RETAIL PRICING? Why do daytrading firms mark-tomarket? Why not account for positions the retail way? I heard that retail firms like Ameritrade and Scotttrade take the other side of a retail trader’s trades and sell order flow. If the firm is taking the other side of customer’s trades, aren’t they losing as well? If so many different orders are coming in each second, how do they manage to sell order flow? How can a retail firm do unlimited shares for $9.99? What about ECN costs? — Still learning Glad to see that you are taking your trading seriously enough to keep on learning. Professional trading firms use the mark-to-market method of pricing and earnings calculations for a couple of reasons. First, since we trade so many times each day/week/month/year, it would be onerous to match up each trade and keep track accordingly. Second, since stock prices change constantly, mark-tomarket gives a better view of the actual profits or losses. If you buy 1,000 of XYZ at $40, and it is trading at $20, the trader has a better view of what we call our net liquidating balance (the true value of the trading account). |
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