Insights into order flow

I’m aware that routing order flow to third party in India is not legal and all trades must execute on exchange. However, I see that there is some grey area and strong reason to believe that it is being exploited. An “order” is something that is sent to exchange for trade but before a user intention(to buy/sell) becomes an “order”, they have to click 2-3 buttons, like buy/sell and market/limit and final confirmation. Through out the time, i.e., during the time when user intention turns into an “order”, the broker would know that an order is going to hit the exchange and prepare himself/market-maker/HFTs to be ready for the trade or simply help improve price discovery. This provides valuable information to the broker that the trade is about to happen at certain price, even before order hits the exchange, giving him the additional leverage than nobody else has.

Is this even allowed or legal in India and do brokers(zerodha?) do it today? I have a strong reason to believe that it’s happening (just watch the bid/ask prices move once we click on buy/sell buttons on kite, no need to place the order) and maybe to the benefit of proprietary trading?

@nithin your thoughts?

It doesn’t happen at Zerodha and most likely not at any other large online broker. I had written this post on a bunch of conspiracy theories a couple of years back, maybe has an answer to your query as well.

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