I have read threads on the forums regarding adding and taking liquidity on the ECNs. Apparently the ECNs pay for added liquidity and charge for taking liquidity. Howâ¦. Does one add or take liquidity?? I am new to trading and do not know a lot as yet, so thanks for responding.
Easy !!! - he said he was new to trading -- Adding liquidity is when you place a bid or offer on an ECN and you are hit -- as oppossed to taking - which is when you hit a bid or ask posted on an ECN -- It should be noted that even market orders -- on instinet can add liquidity - if you become the bid or ask -- but if you using ARCA or INCA smart orders - which are proactive and search to hit the best price - you are always taking -- even placing a limit order can be taking liquidity - if your price is above the bid or ask ---
Adding Liquidity is pretty simple, you add liquidity if you bid or ask at a price that has not been bid or asked already. On your L2 screen you know you added liquidity when you put in an order and it shows up on the screen. Basically, you take away liquidity because if you did when you put an order in your order entry and you immediately get filled because someone was offering to sell or buy shares from(to) you at the price you entered. Most ECN's (at least the ones that will pay the rebates) give you .002 per share to add liquidity and will charge you .003 per share if you take away liquidity. I work for a firm that has all different kinds of naz traders, and contrary to old posts here there are some guys that still make serious money as rebate traders in stocks like SIRI and CMGI. Of course those guys have a deal where there are fees but they only 30% profit take home, but they are still getting checks for over 10 grand a month. Which is far better than the rest of the office that barely gets a check every month trying to scalp or momentum play the Daq. I know a guy that churned SIRI for 9 grand in one day and the daily range for it that day was not even more than 7 cents. Some say its not trading, but money sure makes you feel better about it. heh sorry for venting. Good luck to ya.
I meant to say we don't pay any fees or clearing costs. At first I thought 30% payout was a bad deal then I realized that most firms comissions are around .002-.005 a share. Maybe even .001 with our type of volume, to do well in rebate trading guys are flipping over a million shares a day. :eek:
Just to clarify....this statement is not exactly accurate. You may place a bid or offer at an already existing price. And you may not enter orders in a crossed market. So unless there is a bigger than normal spread, it is very rare that you will be bidding or offering at a "new" price. It is only a matter of having your bid sold to you, or your offer taken from you. This is "adding liquidity". (buying at the bid, selling on the offer). Obviously, the fills may take a while, or never get done. Opening positions get you half way there. Closing positions take a bit of patience, timing and quick reaction after you fill your opening position. Hope this makes sense. RS
what i would like to know is how effective traders balance the act of getting this liquidity rebate as a primary goal vs. avoiding losing trades... from the previous comment in the thread...say your entering a new position...you come in on the best bid and get hit...great you have added liquidity but now there is a good likelihood that in the near term few minutes the stock is heading lower, especially if the market comps start pulling back or go in the red....conversely on the other end if you were exiting a position and jumped on the ask side for the best price and was hit by a buyer...the stock could very well go higher, but if you have made what you wanted to on the position, it really does not matter at that point... so i guess i am specifically wondering about picking your entrance points....if you are scalping for the minute, traditionally you want stocks that are moving fast and furious....so how does this configure into churning a CMGI for example for xxx amount of dollars per month on a consistent basis.
Good questions. And well thought out. From what I have seen, your first scenario is exactly right. If you get hit on a passive bid, chanced are better that the stock will go down than it will go up (at least on the next tick). When I watched guys do this, they would already be "loaded" to see (at the offer) at the same price they bought at (now the previous bid, at which they bought, becomes the offer). So they are really looking to break even. If the stock gets away from them, they will place an "active" order to exit the position. I guess that the added expense is justified by freeing their time from the "bad" position. They take a loss and go on to the next trades. It seems to be all about volume. Not p&l. Of course p&l can and does affect total results, but is not really a major factor for these guys. The are almost playing a video game. Fast reaction to their fills. Once in, they want to get out as quickly as possible. As for your CMGI question....It is the stock of the day that works. If one day or week or whatever, it was CMGI, then that was then. Whatever small stocks that trade a huge amount of volume in a fairly narrow range should work. They just trade the same issue over and over again. One other thing that I am not sure was mentioned of not. But these traders can be long and short the same stock at the same time. So that can help if you think about why. And of course, if a stock is trading in a narrow range, here is an instance in which averaging up on shorts, down on longs may actually be of value (as opposed to conventional wisdom when trading for p&l with more expensive stocks that tend to have wider ranges. Remember, these guys are generally trading $1-$5 stocks. Generally looking for stocks with ranges of a few pennies a day. Hope this helps. RS