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Ask the Trader Guy: Greeks and Ordering On a Trading Platform

April 1, 2010
greeks thinkorswim orders
Fredrik Broden

Q: Hey, Trading Guy! Do you use the greeks when you trade?
A: A long time ago, on an exchange far, far away ... option greeks existed as formulas that people way smarter than me programmed into software I couldn’t get my hands on. So, most of us traded without knowing the greeks of a trade or position, but with a very strong understanding of “if the index goes to this price, and volatility drops a bit, tomorrow morning these options will probably be trading around this other price.” We could do that because we looked at options quotes and traded all day, every day. So, while greeks might be helpful if I want to guess what will happen to my trades once they’ve been put on, I’m much more likely to just look at option prices relative to their days to expiration, volatility, and any news or events coming up that might impact the stock or index. It’s not so much art as it is the application of years of trading experience.

Q: Hey, Trading Guy! What happens when I hit the send button on an order? 
A: The first thing that happens is that it’s sent from your computer to our servers, which have multiple redundancies and are housed in top secret locations. When the order arrives, it hits our order validation and margining algorithms to make sure that you have enough money in your account to cover the margin requirements of the trade. If you do, the order is routed to one of the exchanges. All this happens in milliseconds. The quote you see on the platform is the NBBO (national best bid/offer) from all the exchanges, and if you try to hit a bid or lift an offer at the NBBO, it will go to an exchange that will honor that price. If the limit price is in between the NBBO, where that order gets routed to is based on price and liquidity, although you can choose which exchange your order will get sent to. At that point, the order sits as a working order, waiting for someone else, either a market maker or another retail trader, to come in and take the other side. One of the key points is that we do not internalize, or act as a market maker, on any of our clients’ orders. We work to get you the best fill price and any price improvements that we can without any conflict.

Q: Hey, Trading Guy! I'm trying to get more fiber in my diet. Can bacon play a role in that?
A: Of course! Bacon can play a role in just about every part of your life. As for fiber, the USDA suggests that the aver- age adult requires about 100 grams of fiber a day. Bacon, according to a cursory Internet search, has about 2.5 grams of fiber per 100 grams. According to my math, to get to 100 grams of fiber, you’d need to eat about 4,000 grams of bacon, give or take depending on how crispy you make it. Those 4,000 grams translates into about 8.8 pounds of bacon. Now, I wouldn’t suggest you eat 8.8 pounds of bacon at one time unless you have proper training. But it’s easy to spread that 8.8 pounds of bacon fiber out over a day, in the same way that you might sprinkle, say, flax seeds, on food at different meals. You could start the day with two pounds of bacon for breakfast, followed by a mid-morning pick-me-up of one pound, two pounds for lunch, one pound for a late afternoon snack, two pounds at dinnertime, and a soul- warming pound before bed. That gives you your 100 grams of fiber, and you’ll be beating the average American in your fiber health in a deliciously satisfying way! 

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