adding liquidity

Discussion in 'Trading' started by marcD, Jul 26, 2002.

  1. marcD


    Yesterday I went to meet the manager of a new branch of a firm that owns and runs an ECN.

    Their deal is to pay "traders" to add liquidity.

    If you can open positions on the right side (buy on bid, sell on offer), you get paid between $1.75-2.50 per thousand shares. The numbers they show on their example sheet is for a million shares a day. This looks very sweet, in that you would make $2500 a day.

    It seems to me that it must be a lot more difficult than they make it look like. Obviously you should be able to open all the trades on the "right side", but if you have to hit a bid or offer to close the trade, the cost is greater on the closing side than the credit on the opening side, so you will lose money (significantly more than you would make on the opening trade).

    I was wondering if anyone here has traded this way and if they thought it was a viable way to make money. Also, is there a possibility that the company (nextrade) just wants to get their volume up enough to become a "player" as an ecn, and then will have no further use for the traders that they hire to create liquidity.

    They do pay a nominal training salary for I think 10 days, then give a small draw for a while. So that seems to provide some degree of commitment on their part, but I am not sure if this is just an inexpensive way to get their ecn off the ground. I have no familiarity with this ecn, yet they told me they have been around for a few years.

    Any thoughts?
  2. buying on the bid and selling on the offer seems to be taking liquidity from the market not adding......
  3. It's "buy on the bid" by placing a bid and waiting to be filled. That adds liquidity.
  4. That's rebate +/- P&L.

    I've heard people are making a killing. I'm skeptical.
  5. We have a trader who left there. He says most traders are struggling (all he knows about is the local office). It is a very different style of trading, flipping several thousand shares at a time of low-priced stocks. They did well on WCOM the days before it left nasdaq.

    If you are new to trading, and they pay a draw and sponsor you for your licenses and you put up no money, I can't see that you risk anything.

    If you are not in need of the income from the draw, and you have other prop options, and you are not attracted to this style of trading, maybe you should look elsewhere.

  6. buy on the bid (selling on offer) takes away liquidity...taking the offer adds ....if u sit on the bid and no one hits you how is that adding liquidity...the guy who fills ur order while u are on the bid is the one that is adding liquidity....
  7. there is a thread called liquidity trading go there
  8. someone tell me how you can make a living by getting a discount when you buy something ? You make a trade, you pay the fees, then you get a rebate. How can you come out ahead like that without also having a positive p/l ?
  9. Quiet1



    take one island traded stock.
    take away all the bids and all the offers.
    now add liquidity by hitting all the bids and offers that are not there.

    take one NYSE stock.
    subtract the specialist.
    now trade.

    that's why you get paid to bid and offer.


  10. i am talking about adding liquidity.... and sitting on the bid or offer doesnt offer liquidity to the market, it takes it away...someone taking or hitting your bid or offer is the one providing liquidity....
    #10     Jul 26, 2002