Readers reviews of Secrets of the SOES Bandit

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I first heard of Houtkin in 1994. His crime was to use the Small Order Execution System (SOES) to force market makers to honour their quotes. His bigger crime was to use computer screens to see the depth of market and the difference between the bid and the ask. In Australia we took access to this information for granted. In the Us then, and now, access for private traders to this information is still fiercely resisted by the market makers. It has taken legislative changes to force them to take the first steps towards transparency in the market.

From a day traders view this book high lights the problems of execution risk on trading. The new ECNs for the first time allow the public orders - that is your order - to be displayed. Now you can initiate trades directly. If the bid is 19.00 and the ask is 19.10 you can now place a buy order at 19.05 between the ‘inside’ spread. Until last year this was not possible.

Like all US books about day trading this book is concerned with ways to beat the market makers. Unlike other books, Houtkin details how the market is manipulated and ramped. He examines the lack of competitive behaviour (p156) than exists now and discusses the conflict of interest that applies to all market makers. How can you be both the facilitator of a trade ( ie a broker in Australian terms) and a trader at the same time? Such action is banned in Australia but is considered normal practice in the US.

The book does have a very useful section on day trading rules. The book is worth buying on three grounds. 1) It is one of the clearest explanations of how the market making system works in US markets. 2) It provides good reasons to stand clear of US markets for Australians who think they can day trade or position trade these markets using Australian brokers. 3) It has a good section on day trading rules and recognising manipulative behaviour.

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