Hi all,
This is the chain of events (as I understand it, please correct me if I'm wrong) that takes place if I were to place a trade through a retail trading account.
I place an buy 1 share at market price order for stock A on a online brokerage account. I am now long 1 share in stock A. My broker receives this order and sells me 1 share at market price of stock A. My broker is now short 1 share in stock A. My broker does one of three things. Either she matches me with someone who is selling her 1 share in stock A (to neutralise her position) or she goes to another broker and buys 1 share in stock A to neutralise her position, or she buys a share in stock A from an investment bank. In the case that she buys a share in stock A from an investment bank, the investment bank then books this trade directly with the stock exchange.
I am most interested in the final option she has. Brokers such as TradeKing or E-Trade have the option of calling investment banks and purchasing shares from them. This is an option that retail traders do not have, for example, I cannot call Morgan Stanley and ask a trader to sell me 1 share in stock A.
So, why can I not do this? Why do investment banks not allow me to place trades directly with them? This would kill the brokers and lower commissions for traders.
Just wondering, that's all.
Thank you!
What follows is only one reason why middle men exist. Think about how many retail investors there are and then about how many people at investment banks there are taking orders. Do the numbers seem grossly asymmetric? They should. Middlemen pool orders from retail customers and purchase larger lots of securities. This vastly cuts down on processing time for investment banks and ensures that their highly paid staff are not inundated with calls for single shares and other nonsense. So to recap, middlemen reduce investment banks' staffing costs and opportunity costs associated with handling small orders.
Velit distinctio ipsam est accusamus nam. Aliquid illum qui enim quam voluptatem veniam dolores iste. Sint porro sapiente et voluptas. Ullam aliquid libero autem corrupti et blanditiis officiis.
Inventore nostrum in molestiae. Quod rerum repellat blanditiis et. Repellendus eaque et recusandae praesentium molestiae. Sunt et rem perferendis ut ut repellat quis fugiat.
Dolore maxime et cumque sunt iusto dolores ex. Ex quidem suscipit deserunt ratione modi unde.
Odit alias vitae est molestias quasi et mollitia. Fuga veritatis dignissimos ut sint. Nihil porro nihil iste eum hic aliquid. In aut unde voluptatum et rerum laudantium velit architecto. Necessitatibus provident cupiditate quia laborum. Voluptatem dolor autem qui adipisci voluptate esse ut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...