I don't think it's illegal, not even really front-running. That'd be them turning a price profit on filling your order, not just using it to avoid a potential loss.
Also, you're right, at a minimum, via a subsidiary it's possible for the brokerage to "fill" your order without it ever reaching the exchanges, I think as long as it's inside the national bid-ask price spread at that moment. They pitch this as a feature - it also lets them avoid exchange fees. Then they can manage their overall risk separately.
Yes, I stopped trying to make those trades years ago. At one time though it was a remarkably consistent way to succeed on a small scale.
I'll admit I haven't looked at every broker, but every exchange that I know of, you have to opt in for orders to not go to the other exchanges.
This frequently is a feature for both sides of the equation due to lower fees, better execution rules, rebates, priority, etc.
I certainly know that I would never opt in to a platform that consistently provided worse execution (especially in the equities space where there are so many choices).
Comments
I don't think it's illegal, not even really front-running. That'd be them turning a price profit on filling your order, not just using it to avoid a potential loss.
Also, you're right, at a minimum, via a subsidiary it's possible for the brokerage to "fill" your order without it ever reaching the exchanges, I think as long as it's inside the national bid-ask price spread at that moment. They pitch this as a feature - it also lets them avoid exchange fees. Then they can manage their overall risk separately.
Yes, I stopped trying to make those trades years ago. At one time though it was a remarkably consistent way to succeed on a small scale.
I'll admit I haven't looked at every broker, but every exchange that I know of, you have to opt in for orders to not go to the other exchanges.
This frequently is a feature for both sides of the equation due to lower fees, better execution rules, rebates, priority, etc.
I certainly know that I would never opt in to a platform that consistently provided worse execution (especially in the equities space where there are so many choices).