Are you adding or taking liquidity? Citadel, Knight/GETCO, and 3 other firms form the vast majority of "subpennying" in the market. If you're taking liquidity, you're just "robbing yourself" of the .0001/share D) you'd be getting if you used some "discount" broker's "smart" D) routing system. By the way, in doing this you are forgoing any price improvement you might otherwise have gotten from a hidden order on the exchange, which is at a minimum $.01 (that's 100 TIMES what you'd get if the order were internalized/sold to wholesalers for a "price improvement" to you of $.0001/share, which is by far the most common case). If you're adding liquidity on those routes, I'd be curious to hear your experiences. I once sent a lot of liq-adding orders to a Knight route (whether directly or not, I can't remember), and Knight complained to the broker about it; probably not coincidentally, the trades were profitable (for me, not for Knight). It was a funny conversation when the broker contacted me, because I was generating a lot of fees for the broker; the broker really didn't want me to stop the trading, yet they wanted me to say something to Knight about what I was doing, etc. I just gave up and routed everything to exchanges, which ended up working much better anyway.
I rarely aggressively cross the spread to take liquidity. When I do, I usually ping dark pools first and then rout to an lit exchange - and usually cross through. If a HFT sees a level getting crossed, they'll sweep the books faster than me and flip it to me for a penny (or whatever). I'm fine with that as I wouldn't have been able get some of that size on my own. Though, most of my orders I route to only execute at the midpoint or better. It's obviously more passive, but also allows me to interact with more retail flow. I've never had any issues with brokers complaining about adverse selection or anything like that. I assume I'm more often than not on the same side as the internalizers as the only way they'd trade against my midpoint or better orders would be if they were to cross the market.
I don't think that's right. The people who subpenny orders can see displayed orders on the ECNs and they use them as insurance while they subpenny the orderflow they pay for. They will take fills away when the market is stable and dump orders on you when it is not
Sounds like you are talking about stuff that is happening outside of an exchange. I.e. at whatever HFT firm is buying the order flow from your broker.
You are right that no one can sub penny front run my order ON the exchange. But they can sub penny front run my order OFF the exchange in dark pools. The end result is the same: I do not get the fill, because I am being sub penny front run.
If you are being front run in a dark pool, then why are you trading there? Stay in a lit market where you can know what is going on.
I am not trading in a dark pool. My lit limit orders are being front run by HFTs using dark pools. Example: I post a buy limit order at 10.00 on an exchange. An incoming market order should take out my 10.00 buy limit order, but it does not. An HFT intercepts and fills the incoming market order at 10.0001 in a dark pool.
Okay. Now I understand what you are saying (wasn't clear to me before). What you described was probably happening with an internalizer not necessarily with a dark pool. While I wouldn't call this front running as it doesn't fit the definition, I do see how this can be frustrating. The answer is to be more aggressive with pricing or be more patient and wait for adverse selection.