[Beginning of Cramer's verbatim comments for this segment...]

Jim:        Tonight, I'm taking a page from the "Law and Order" playbook... with a stock that's literally ripped from the headlines...

Take a look at the front page of today's Wall Street Journal... The story... "Return of Day Traders Drives Rise In Volume." Although, if I would have written it, I would have read... "Day traders are back, buy Knight Capital Group (NITE)"... my favorite broker when it comes to electronic trading... They report, we make money.

The retail investor is back. Okay, that's a big change, and not just as someone who pours money into Mutual Funds in drips and drabs from 401k's or IRA's... I'm talking about the active trader. As The Journal tells us, trading volume was up an amazing 14% from July to August, at Charles Schwab, TD Ameritrade, and E-Trade. Knight Capital posted a 7.7% increase in volume...

This during August... usually one of the worst months of the year?... as the people who follow the foolish "sell in May, go away" axiom still haven't gotten back from vacation. This year, anyone who did that is kicking himself, whipping himself, and punching himself... thanks to this powerhouse of a rally...

Now, this market is different... A lot of the trading volume is in small, speculative financial stocks... Do you know that, on some days in August, trading in just Citigroup, Bank of America, Fannie and Freddie... made up more than 15-20% of total market value. People love trading in and out of these names now. And I can understand why, considering all the money they're making.

So we need a play on that play... we need the picks and pans maker for the gold rush... That's right... We need Knight Capital Group Inc. (NITE).

We see retail investors coming back in the volumes, and we know part of the reason for that because of the market's rise... but why are they coming back to day trading?...

I think it's about more than just commissions being low...

According to Tommy Joyce, the fantastic CEO of Knight Capital Group Inc. (NITE), and a man I've known for 35 years, when his hair was brown and I had hair, there are three other things going on here...

First, there's speed.

The average speed at which a trade is executed for you in a typical liquid stock has dropped to 30 milliseconds in the last five years, so it's much easier for investors to get the price they see on that screen instantly. It eliminates any fear of "slippage"...

Second...

Five years ago, about 77% of all orders were "at or better"... That's a technical phrase meaning the investor got a better price... that's right, got a price "at or better" than the national bid, or best offer. Now, 93% of all orders are traded to the best prices available. I find that incredible.

Third, "price improvement," another technical term...

Everyday, more than 45% of all orders are "price improved," meaning that you actually get a price that's better than the stated bidder offer. Five years ago, that was only about 25% of the orders were price improved. You used to feel ripped off all the time...

This way, people who place market orders, don't feel like they're being cheated at every turn. They actually feel like they can make money... although you know I always tell you to place limit orders, especially in fast market... so that, if you can't get the price you want, the trade doesn't go through... I respect how fast this market is.

In English, what does this mean?...

When I got in the game, in the 1980s, retail investors got the worst prices, and the big guys got the best. The data I just told you about shows that retail now gets the same price, or even better... The system's become more efficient and more friendly to the retail investor... the homegamers like you...

Look, I know you're constantly hearing about the evils like "flash trading," "high-frequency trading"... the so-called "dark pools of capital"... how they tilt the playing field to the benefit of the big boys, and against ordinary investors...

Now, I know this is going to sound very counterintuitive, but you've got to trust me on this... I'm not involved in the industry, okay... but none of that is correct. None of it... Truth is, it has never been a better time to be an ordinary person investing or trading in stocks, and a lot of it is because of this deep pool.

There has been tons of criticism about deep pools of liquidity... But really, these dark pools are just fluid, private institutional stock markets that trade large numbers of shares outside the New York Stock Exchange or the Nasdaq... As Martha would say, "they're a good thing." They add liquidity... which is another term, liquidity, which is Wall Street jibberish for something that makes it easier for you to get the price you want when you try to buy or sell a stock.

They're helping to break the competition and limiting a duopoly... In other words, there's a duopoly of the Nasdaq and the NYSE. Of course, they don't call it that. They're competitors, but they do not help you get better prices, believe me. It also means they come in for a lot of criticism from the uneducated press and from the executives at the exchanges, because they're losing market share... and the so-called "dark pools" are really just markets that are fast and clean and honest... more honest than any other time I can recall. The New York Stock Exchange is honest, the Nasdaq is honest... but the more the merrier... the more competition we have, the better your prices.

The characterization of dark pools is unfortunate. No one wants to dive into a "dark pool." It's like diving into the Love Canal. They should be called "Olympian Pools," because there's room for everyone... That's why I like NITE, the leading source off-exchange liquidity in U.S. equities... that has greater share than any U.S. exchange...

Remember, you don't turn to Goldman Sachs for retail investing... you don't necessarily go to Credit Suisse... Even Morgan Stanley... the Smith Barney division, maybe, but there's institutional. You're not trading with them. Bear Stearns is gone, so is Lehman...

You know what that leaves? That leaves Knight Capital in an enviable position when it comes to the New York Stock Exchange, which seems to continue to lose market share by the month. Again, not knocking the stock exchange... just encouraging as much competition, which includes Knight.

Now, Knight Capital Group typically handles over 5 million trades a day... mostly for retail clients. As market makers, Knight internalizes the flow. Again, Wall Street jibberish that I will bust here. It means that they take the other side of the trade instantly for the best bid or offer. Again, this is a good thing. It gives retail investors great prices.

Just yesterday, Knight announced that their average daily dollar volume was $24.2 billion in August, up 8% from July. Average daily share volume was $15.6 billion. That's up a phenomenal 53% over July, driven by increased small-stock trading. The small-time investors trading Citi and Fannie and Freddie and in AIG, before the split... their taking their business to Knight...

Its Nasdaq market share rose from 17.4% in July, to 20.5% in August. That's up huge from a 10.3% share in August, 2008. Its listed market share rose 12.8% in July, to 15% in August, up from 8% in August of 2008.

I mean, this is a company that's veraciously devouring market share. The New York Stock Exchange and Nasdaq will not like what I say... This, to me, is empirical. I welcome them on the show, but I have to point out the share gains here. And this is all after the incredibly bullish conference call at the end of July for Knight, when the company told us daily trades were up 123% in the first half of 2009, from the first half of 2008. That's amazing. Daily share volume, up 103%... Daily dollar volume trading increased by 26%. As T.J. (CEO) put it, "the rise in dollar volume trades is absolutely remarkable, given the concentrated trading activity in low-price stocks, which we witnessed in the second quarter."

On that call, T.J. said the price of his stock was so low, it was "silly."

Now... the stock has moved up $3.64... or 20% from when he said that. That was at $18.20. It's still silly if you ask me. I think it deserves to be higher... maybe much higher, because of the return of... well... you.

The bottom line...

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The Bottom Line!:     The retail investor is back. You know it and I know it. The playing field, despite the bogus accusations you might hear about "dark pools of capital," has never been as level for all you homegamers. I've never seen it like this. And Knight Capital Group Inc. (NITE) is our stock that is a knight in shining armor, and the way to play a trend... I think it's a buy, buy, buy.

[verbatim recap]

[end of segment]

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