In fact, he said, the opening is the only time of the day that Knight consistently loses money. Knight promises to execute at a single opening price most of the overnight Nasdaq orders that it receives from online brokerages. Because the firm often uses its own capital to complete the trades, it can lose money when stocks go the wrong way, Pasternak said. Nevertheless, Knight has been enormously profitable. Without it, Knight would have fluctuating profit as it speculated blindly on the market.
Wholesalers acknowledge that professional traders have an edge over individuals.
But, they say, that's no different from a car dealer knowing more about the auto market than a consumer, and they argue that the firms don't have an unfair advantage. Knight makes money because it has superior technology and smart traders who are better at assessing public information, he said. Our advantage is not around what we see. It's what we do with it. Lon Gorman, head of Schwab Capital Markets, said wholesalers may have had an informational advantage earlier this year when stocks were soaring.