Does 'Order Flow' mean that brokers get rebated an amount of the cost to trade if they direct a certain amount of their daily volume to specific market makers/specialists? I checked IB for the list of ECN fees and it came out to this for me: Buy side of transaction: My strategy sends orders(I think limit orders) in anticipation of where the next price will be so it's adding liquidity. The orders get cancelled if not filled. broker fee: .0035 average ECN rebate for adding liquidity: (.0015) Sell side of transaction: I just sell at next available price I'm removing liquidity broker fee: .0035 average ECN cost for removing liquidity: .003 This is still better for me because it makes 1 whole transaction cost .0085/share, over the flat rate of .01/share
NO. On the equity side the transactions routed to a dark pool or equity market maker are printed by a Nasdaq member, so there is no ECN and no rebate/fee beyond what Nasdaq charges.
I'm not sure I understand then. Please forgive my ignorance, but could you try to explain that in laymen terms?
use his example/scenario to explain...(Perhaps use several scenarios). buy 1000 shares at $9.45 = $9,450.00 $3.5 for brokerage fee buy 1000 shares at $9.46 = $9,460.00 $3.5 for brokerage fee
I'll try to make up an example. Knight has an equity trading desk. They make money from trading stocks. They want equity flow to be directed to their traders so they can buy on the bid and sell on the offer all day. It creates equity baskets that they trade. EG Stock symbol ABCD trading on Nasdaq current National Best Bid Offer (NBBO) is 50.01/50.03 5000 x 200. Let's say Knight's market is 50.01/50.05. So they are a buyer at the current NBBO but not a seller. If I'm at TD Ameritrade and I sell 500 ABCD at the market and select smart route, and Knight is a participate on their dark pool, Knight might pay 50.011 to offer a better price. They might pay an additional .001 to TD. You receive 50.011, Knight pays 50.012. Then they might change their market to 50.00/50.02 and try to sell the stock they just bought. You get a small price improvement TD gets a small payment Knight gets order flow TD and Knight avoid ECN fees on the transaction. Better?
So this would mean that there might be situations where you wouldn't pay an ECN fee for the sell side of a transaction?
So how would this affect his example/scenario: buy 1000 shares at $9.45 = $9,450.00 $3.5 for brokerage fee buy 1000 shares at $9.46 = $9,460.00 $3.5 for brokerage fee ES
There is no ECN, if traded in the dark pool and not routed to an ECN. That's one reason why traders use it.
It would not change anything. He ask me to explain what I said. Your example does not include ECN fees.
Either you pay commission by the share (i.e. 50 cents per hundred at IB). Great if you're trading 100-500 shares or so. You can pay $7.00 for either 100 shares, or 10,000 shares at Scottrade. Be careful if you don't get all your shares in one trade, because the $7.00 will apply to each "ticket." You can negotiate a good rate at MBTrading. You can pay for taking liquidity or get paid with proper routing, not sure if retail can do that. The commission being based on dollars spent on shares bought is pretty much a long gone arrangement. Don