Normally, when you give a broker a price, you stick to it for a certain minimum period of time, say, a minute (it will vary by market). You can still pull out of this price if needed but it will annoy your broker and since they provide you with some access to liquidity in size as well as information.

A price is given to a broker for a product. All fairly normal.

The price of the product goes down within the generally accepted time frame.

Within the dying seconds of this time frame, the broker insists we buy at the bid we had given earlier since he has found someone who will sell it. We agree - the cost isn't too high although it is rather annoying to be the one buying in a falling market...

Minutes later, we ask what the broker market price is for that product.

A price comes back and it is really rather high - again - within that time frame, the price of the product has fallen but this time, it has fallen very very hard. We sell to the broker by hitting the bid we heard.

The broker goes back to the people who gave that market but they point blank refuse to honour the prices they gave since it is now outside of the time frame as far as they are concerned.

Broker comes back to whine about how he must be let go from the trade.

During all of this time, the price of the product has tanked completely.

The broker is now saying he'll cut the line for weeks, maybe more - if we don't let him go.

The price is still falling.

We tell the broker we'll let him go if he'll let us go on the earlier trade - naturally - we expect him to say no since there's no way in hell he'll go back his previous customer and tell him he needs to cancel a trade. But at least this way we almost sound reasonable...

The price is now rock bottom and the broker is stuck with a product that is worth peanuts.

We still don't talk, we really don't care. The broker has presumably lost quite a lot. Rough estimate that the single trade may have cost him about 3 weeks worth of work. Mostly because he spent so bloody long whinging and moaning about how he needed to let go of the trade, watching the price plummet - rather than just ditching the thing.

Supplement

I may have just dissed the brokers beforehand, but the information they gave me about 20 minutes ago made my day. Thanks guys.

Published by the B in Derivatives Trading at 12:33, 5th February 2008

tagged as traders,brokers

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