Alpha
Alpha What?! – That is what a lot of retail investors will be asking themselves
www.AlphaTradingSystems.ca
What it is... a giant pain in the $#@%
alpha.jpgLong story short... before you place a buy or sell order on the TSX or TSX.V, be sure to waste your time and check Alpha to ensure you’re getting the best price. Believe me, all is no longer as it appears.
Instead of doing something to help retail investors in Canada, the major discount brokers may all be moving their trades to Alpha. And they must be doing so for their own self-serving interest, because from what I can see, this is going to be a major inconvenience for retail investors.
So far I have only called and checked with TDWaterhouse who confirmed they are doing this. I assume many of the other major banks are doing the same but check with your broker.
In the past Canada had one of the most transparent stock exchanges in the world. When you looked at the bid/ask or market depth, what you saw was an accurate picture that could be trusted. Now with Alpha that will be gone because the quote system you are likely using is getting its feed directly from the TSX or TSX Venture Exchange. It doesn’t reflect what is happening on Alpha – and your discount broker (or maybe full service broker) isn’t about to tell you they are routing their orders through Alpha to make more money.
You place your order based upon what you see. They execute your order through Alpha. If someone doesn’t come up with an affordable way to provide quotes that integrate (both) clearing systems, we as smaller retail investors will be at a huge disadvantage. It took the Internet to come along and level the playing field for everyone. This is a major step backwards.
Example: 1:38pm EST Monday – Seaview Energy (TSX: V.CVU.A, Stock Forum)
My online quote system that I have used for a decade and is not only quick but highly accurate reports the following:
Bid 14,600 at $1.33 / Ask 200 at $1.34; Last price $1.33; Volume 75,400
Alpha reports
Bid 500 at $1.33 / Ask 500 at $1.35 - Last trade $1.35; Volume 7,700
Alpha also shows market depth so you can see other bids/asks for free – but it’s useless as the number is completely different from what the mainstream quotes are reporting.
Here is where it becomes tricky. If you wanted to place an order to buy or sell and were using someone like TD Webbroker, you wouldn’t notice the difference if your order was filled right away. However, in the majority of cases your order may not be filled and it will make no sense why – or why your bid and ask doesn’t even appear. It’s because they are using Alpha.
If you haven’t noticed it yet, you will eventually. And you will realize what a huge inconvenience this is for tens of thousands of Canadian retail investors.
When everyone used the TSX directly, we had great transparency and execution. Now we are using two completely separate clearing systems and the TSX and TSX.V will soon resemble that horrible OTCBB in the United States, where market makers are used and you never have any clue what the real bid and ask are.
Algorithmic trading
The major banks will tell you they are using Alpha to bring down the cost of trade execution. I am sure that is true to a point. But I also wouldn’t be surprised if it is designed to accommodate Black Box or Algorithmic trading (computerized trading).
We are seeing more and more computerized trading on the TSX and TSX.V and it’s creating insane volatility in many cases - this year in particular. I watch the markets very closely through the day and have for over 20 years. Now what I see when momentum builds on a small stock, is huge swells of buying and selling.
Simply look at the trading this past month in INM.V and INT.V. Their news releases were good but nothing to generate the type of massive volume we witnessed that pushed those stocks several hundred percent higher within a week. That is fine on the way up. But not so much on the way down.
All these stocks are running hard, and crashing hard. How is that any good for the investment environment in Canada? It’s not. Those are only two examples – there are many this past month alone.
Algorithmic trading has been around for years and is becoming a major problem in the United States, as I believe it accounts for almost 60% of all trading on the big boards. I do not know the extent in Canada but in the past I don’t ever remember the small stocks trading as rapidly as they have been and on such huge volumes.
frustration.jpgNow that I have become aware of this magical little clearing house called Alpha that only the mainstream brokerage firms, institutions, and professional traders seem to use, it makes sense now. There are definite spreads between Alpha quotes and TSX quotes. If you can capitalize on those spreads (and do it rapidly through computer programs), a huge amount of money can be made.
I have only looked into the smaller stocks, but you can imagine the larger higher volume stocks.
Do yourself a favour and check your own stock quotes against
www.AlphaTradingSystems.ca
In particular, do so before you buy or sell anything. You might be very surprised at what you find.
ABOUT THE AUTHOR
Danny Deadlock, MicroCap.com
In addition to the editorial published on Stockhouse, Danny Deadock is lead analyst and publisher of MicroCap.com. With over 25 years experience speculating on penny stocks, their focus is Canadian juniors traded on the TSX and TSX.V. The service covers various sectors but is weighted towards natural resources. Annual cost is $163 Cdn. For details, please visit
www.microcap.com