There are more ways to buy and sell stocks than many investors or would-be investors realize.
For example, the system used on the New York Stock Exchange (NYSE) is called an auction market. All buy and sell orders are done through a specialist on the trading floor who handles a particular stock. That way, all orders for that stock meet and compete at one central location where a fair price is reached. A stockbroker acts as an agent for the investor and is paid a commission for carrying out the trade but doesn't make any money from the trade itself.
A different system is used on the Cincinnati Stock Exchange (CSE). There is no trading floor. Instead, brokerage firms use computers to say electronically at what price they want to buy or sell a particular security. Usually, the broker acts as both agent for the investor and as principal in the trade. This means the broker profits not only from the commission but on the actual trade itself. This practice is known as "preferencing."
Many see this as a conflict of interest and believe the investor may not be obtaining the best possible price with this kind of system. Critics claim this puts the health and integrity of the whole capital market system in jeopardy.
Investors may not realize that trades in NYSE listed stocks may actually
be done on the CSE, other regional exchanges or the over-the-counter market.
If you want to be sure that your NYSE listed stocks get the best possible
price, you can specify that your broker send the order to the NYSE. Usually,
the best price is at the NYSE, but if a better price is available in another
market, the NYSE will ensure that you receive it.
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