Adding/Removing Liquidity & collecting ECN Fees

Discussion in 'Order Execution' started by Empresario__, May 23, 2012.

  1. I am new to the ECN world...
    When I add liquidity i am basically selling a stock right?
    and if I Remove liquidity I am buying?

    also... how can people buy and sell at the same price and still generate ECN fees when say BATS pays roughly 2.5/1000 shares but commissions are more than that? I pay 6.5/1000 shares and i would have to sell it at least +.02 cents to profit if i collected ECN fees. Even if I collected the 2.5/1000 wouldn't i have to route it somewhere where they would charge a fee? so technically i am not collecting the 2.5?
  2. "Adding" liquidity is when you BUY on the BID and SELL on the ASK, in other words, you're "adding" liquidity to the market.

    "Removing" liquidity is the exact opposite, it's when you BUY on the ASK and SELL on the bid. In each of these cases, you are taking liquidity away from the market and hence pay the ECN fee.

    Where are you trading? If it's a prop firm, then paying $6.50 per 1,000 is way too high. If it's retail, then you may want to search other firms that have per share pricing and offer ECN rebates.

    BATS has decent rebates, so if you want to collect the rebate, you would place an order on the bid side to BUY and place an order to sell on the ASK.

    Hope that helps.
  3. jo0477


    Yeah, ScalperJoe is right - $6.50/1k is way high. You should be able to find 0.20/1k in the right environment.

    if you're retail, I don't know how many brokers pass through ECN rebates (mine doesn't, I just don't pay for adding liquidity). Probably not a viable strategy based on your cost structure but can always help adjust your cost base.

    Just to sort of simplify it for you - basically a market order will remove liquidity (buy the ask, sell the bid) while a limit order adds liquidity (buy bid, sell ask). If you are rebate trading, then you will be on the top of the book (BBO), looking for a very high volume stock, and selling/buying when it moves a penny or less in your favor just to collect the rebate. If you're looking to adjust your cost base - enter/exit on limits to collect your rebate.

    This is the general rule but I believe BATS offers several routes that pay to remove liquidity so you could always route through them if you need to exit quick @ market.

    FYI, I don't really trade equities a lot but this is my understanding. There are undoubtedly a lot more qualified people to help you out with routing strategies here.

  4. luisHK


    That's abt 17 times cheaper than IB (25times if on bundled pricing structure) ?!? What kind of right enviroment are you alluding to ?
  5. jo0477


    Sorry, my mistake. I meant that I agreed with ScalperJoe in that $6.50/1k is expensive for Prop - nothing wrong with that pricing for retail.

    Based on the deals that friends of mine have gotten, there seem to be some good Canadian firms that offer 0.20/1k with 80%+ payouts. They have been remote traders for several years and seem to be happy with their deals.

    Also, I'm not for or against this model - simply stating that it does exist, at least to my knowledge.
  6. JSOP


    IB actually passes on rebates that you receive from the exchanges that give rebates for adding liquidity. I have had a few trades where I actually earned commissions instead of paying them. I agree BATS is the best. They give the highest rebates when adding liquidity. You have to use their "Smart MaxRebate" routing when sending the order to the exchanges.
  7. What are you trading? Max Rebate SMART almost always posts to PSX for equity limit orders.

    BTW, can someone explain in simple terms how priority works on PSX ( ?

    They keep saying "price setter," but I have no idea what that means. If you are showing the best price on a given exchange (no one is at the same level as you are), of course you get filled first -- so that can't be it. If it's that you are the first to post at a given price and others then join you, that's simple time-priority, so that can't be it either.
  8. JSOP


    Options. I see Max Rebates posts to all over the place. I've got orders filled by ISE, PHLX, CBOE, C2, NASDAQOM, BATS (the best), MIAX, BOX...basically everywhere except the main exchanges like AMEX, NYSE. The route is supposed to route your order to the exchange that gives the highest rebates while your order is marketable. And when using the SMART routing, your order DOES get posted onto the exchanges. I have seen quite a few times my limit order price show up on the best bid/ask.
  9. "The route is supposed to route your order to the exchange that gives the highest rebates while your order is marketable."

    Well, since you are adding liquidity, "marketable" is not a factor. PSX has the highest rebate (by a hair) for US stocks, so MaxRebate will almost always route liquidity-adding limit orders there (exceptions are near open and close). There may be more to the algorithm than that, but it certainly doesn't seem to be too sophisticated (for stocks, anyway).
  10. JSOP


    I don't trade anything else besides options so I wouldn't know about stocks. For options, I don't see a particular route that the MaxRebate algo routes its trades too. Since BATS has the highest rebates for liquidity-adding option orders, so once the price is there, the order gets routed there quite often.
    #10     Feb 25, 2017