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even some more active traders who are using Level I quotes rather than a more sophisticated software package. |
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The alternative system is called electronic direct access. This means your connection is not through a discount broker but directly with ECNs where there is no one stepping between you and the person who wants to sell you your 100 shares of Dell. It is both faster and cheaper per trade to trade this way but requires the direct access that comes only by paying for this privilege. |
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ECNs like Instinet, Island, and Archipelago are competing with the NASDAQ market makers and bringing buyers and sellers directly together rather than forcing you to go through a broker. You pay a fee to them based on the number of shares involved. But the more significant fee you pay is to have the direct connection to them. And it is this very fast connection and access to the ECNs that puts you in the position to choose where you want your order to go that trading firms have to offer. |
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It is possible to get direct access to the ECNs using home software packages, but you are going to pay a rather high monthly fee for this kind of speed and direct execution either through a required number of trades or a straight charge if you fall below the trade minimum. |
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Some day trading firms are now offering what is called ''smart routing" software in an attempt to win some of the business of the online discount brokers and make negotiating the various ECNs easier for day traders ("Day-Trading Firms Create Smart Software to Seek Out Best Prices," Los Angeles Times, November 9, 1999, p. C1). |
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Companies such as TradeCast, CyBerCorp.com, and Tradescape.com have smart-order software that scans the NYSE, NASDAQ, and ECNs to evaluate where an order should be sent based on price and execution of the system at any moment. It will then automatically route the order to the one offering the best price. |
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This is a recent development that adds to the attractiveness of direct access trading. It ought to have some impact on the decision making of active investors when choosing whether to use the browser-based system or ECNs through direct access. The key for day trading firms in selling smart-order routing systems is in convincing investors that they will save more money by getting better executions than they will pay in additional charges for the system. |
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During quiet times of the market, the advantages of the smart routing may be negligible. But during the open and close of the market, when the volume is the heaviest and prices are most volatile, the |
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