[atomicnumber3]

Just for the record, the latency arb / microwave networks speed game is basically dead as of 2018-2021. Looks at Virtu, formerly classic examples of the trade and now almost entirely "switched sides" and doing order execution services for the same big banks whose lunch they were formerly eating.

Furthermore, the wireless stuff is commoditized at this point. You can just rent to be on the wireless that Apsara (et al) offer, and while some have private networks, there's not enough money left in the trade (see above) to be worth it if you don't already have one.

This is combined with liquidity moving away from public exchanges (both the lits and darks) towards being matched internally/by a partner (PFOF matching), which is purely a win for retail traders and is its own force that isn't going away. (Go on robinhood and buy 2 shares of SPY. It fills instantly. People love that. You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from?)

Traditional HFT is dead. The only extent any of the firms are still alive is the extent to which they've moved on to other trades, many of which are so much less latency sensitive that the microwave edge doesn't really give you enough alpha to be worth it.

(I worked for a firm for a long time that didnt move on to other trades... so I'm quite familiar with the scene.)

[areyousure]

> You can't just go get 2 shares of SPY off the lits, so where dyou think those are coming from?

Why can't you just get 2 shares on an exchange?

[ddulaney]

Exchange trading happens in round lots that are usually 100 shares.

This is pretty much just a legacy thing, but so many technical systems have this assumption built in that while odd-lot trading (trades not in the round lot size) has become a little more common on the exchanges, it’s still treated weirdly by the various systems involved.

But also, it’s better for you as a retail investor, to get them from a middleman, because they will generally give you a better price than the exchange. They will give you a better price because retail traders tend on average to be worse at trading than the overall market. You should take advantage of that, regardless of your actual ability level.

[areyousure]

My research suggests that the majority of on-exchange trades are odd lots.

For stocks like SPY (those over $500 per share!), the vast majority of orders are odd lots.

This article is many years old and already has data strongly in that direction: https://www.nasdaq.com/articles/odd-facts-about-odd-lots-202...

[atomicnumber3]

Odd lots don't contribute to the NBBO, and placing an order for an odd lot doesn't have to execute within the NBBO. (People can trade "past" you, I am pretty sure ISO's don't need to clear you, etc). (Note these are rules for market participants, not retail customers). So for a firm trying to argue they provide excellent price improvement and execution efficiency for their customers, they can't "just" send the orders to the lits.

And even if they could "just" do so, internal matching typically provides better price improvement on the NBBO than even the best execution you could get off the lits.

Edit: But yes TBC, you're correct that odd lot trades aren't unusual. But you're seeing trades there by actual market participants, not retail orders. They're not just trying to get those 2 shares, there's a broader strategy and they're aware of all the above nitty gritty.

[areyousure]

Sadly, firms abuse odd lot rules to give people terrible prices: https://academiccommons.columbia.edu/doi/10.7916/2y01-1s13/d...

In example 3, the NBBO for stock ABC is 495--500, but there is also an odd lot offer for 497 on exchange. If a Robinhood customer sends a market buy order, then Citadel is allowed to fill it for 499.999 even though it's better to send to the exchange. (And if they then pick up the odd lot themselves, it's easy arbitrage.)

By the way, while you're correct about some of your claims, odd lot executions definitely have to occur within the NBBO. (How could it be otherwise?) Otherwise, in the example above, Citadel would give an even worse price!

[atomicnumber3]

I mostly mean scenarios where your limit order might not be marketable, end up resting on the book, and then get traded "through". I'm speaking from the perspective of an actual direct market participant, where you're not using a market order but are trying to enter a position while adding liquidity/collecting a rebate. (Most exchanges reward participants who have some % of their trades as liquidity-added, with rebate tiers).

Round lots are excluded from the NBBO so that the NBBO can't be as easily influenced by quantities of shares that don't represent any material price signal. 1 share of practically anything but BRK class A represents ~nothing. Less than a round lot on a price level is basically no liquidity available at that level.

[Galanwe]

There are per ticker rules to allow odd lots on most US markets. AFAIK unless you're trading penny stocks, every stock out there is entitled for odd lots, and most trades are indeed odd lots, that has been the case for 10 years at least.

Even if there wasn't, I guess at least half the trading on stocks is through CFDs and not cash, so lots aren't even a thing for most investors.