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.