ECN Fees, someone tell me

Discussion in 'Prop Firms' started by calhawk01, Mar 2, 2010.

  1. Guys I am a little confused about ECN fees. So here is what I know. Please let me know if I am right or add more substance to my statement

    ECN fees are added if you buy a stock at ASK because you have to pay the MM for the shares?
    However, you can try to get your order filled at bid, but most likely you are on the wrong side of the trade if it does get filled.
    What is the difference between direct buy and buy at ask?
  2. robbie25


    No. They have nothing to do with the MM. The only way fees become an issue is if you are directly accesing the exchanges themselves. If you ARE doing that, then you are not necessairily trading with the MM's (although you may be). In fact, in some ways, you are now competing WITH the MM's.

    As for the fees themselves, each ECN has a fee schedule that it either charges (or pays) you for volume. Generally, the ECN's will pay you if you ADD liquidity (for example, place a bid at or below the highest bid....if you then get filled, you have added liq.) and charge you if you Rremove it (for example, if you cross the spread and buy at the asking price)

    Each ECN (there are lots) has different fees, and you need to choose your gateway based on what you plan on doing.

    Important to note, remembr I said that 'generally' ECN's pay you to add liq. and charge to remove. That is not always the case though. The Boston Exchange (BOSX on L2) actually does the opposite, that is, they pay you to remove liquidity, and charge you to add. I believe the current fees are chargin 0.0002 to AL but rebating 0.0001 RL

    In comparison, the ARCA gateway charges 0.0023 to RL but rebates 0.002 to AL.

    You can see how the fees are structured so the exchanges make money. The rebate is always a little less then the charge going the other way.

    It's important to note which gateways do what when trading, because they affect how things go. For example, if you have mad e adecent profit, and just want to get out out of atrade, but don't want to give up the spread, placing an order on BOSX would be a great choice. Remember, BOSX pays you if you remove liq. so generally, BOSX (and EDGE A, which also pays to remove) gets filled first. It's kind of a way of jumping the line. Let's say there are 1000 shares on NYSE, and a few hundred shares in the other gateways, but only 5 on BOSX, you can place your bid there and almost certainly will get filled before any of the other excahnges do. To do this, you will actually be charge a small fee for adding liquidity, but it's sometimes a good trade off if you've already done well on your trade.

    On the other hand, if you don't care about getting filled quick, you can place a bid on the more busy ECN's that pay you to add liquidity. But that has it's pitfalls as well...let's say you place a bid on ARCA (which rebates 0.0023 to AL) then you may get filled, but it is very possible you will only get filled as the level collapses. On the other hand, that level may hold, and because ARCA is among the last filled, you may not get filled at all and then the price starts to move up.

    What is your situation? ECN fees are only relevent to you if you are directly participating in the market. If you are just using a retail broker, none of this will matter to you.
  3. I have been using TD as my broker but i recently joined a trading group in NYC. I have not started trading with them yet but i will soon. The guy explained me about ECN fees but i still had questions. I appreciate your insight and i will ask him more questions aswell.
    I think he said usually the ECN fee is 30 cents per share? but i generally get a rebate on all of the fees?
    What do you think?
    So basically every time i remove liquidity (buy at ask) i will be charged ECN fees (unless the ECN does the oppisite -BOCX-), but i could be eligible for rebates.

    -ps- thanks for taking the time.
  4. robbie25


    I should clarify said:

    "However, you can try to get your order filled at bid, but most likely you are on the wrong side of the trade if it does get filled.
    What is the difference between direct buy and buy at ask?"

    Don't think of it in terms of you 'buying or selling', but 'addiung or removing'

    I should have clarified that buying adn selling is not the same (necessairily) as 'adding and removing'. You can add liquidity by buying, and add it by selling. You can also remove liq. by buying, and remove it by selling. It doesn't matter what the end results of your trade is when it comes to fees (long or short) all that matters is "did you add liquidity or remove it?"

    An example:

    ABC Corp. currently has a bid/ask of $10.01/$10.02. If I "cross the spread" and buy 100 shares at the ask ($10.02) I have removed liquidity. However, I could place a short order at the ask ($10.02) and it will go into line behind the orders already there. Let's say my short order does get filled, I have ADDED liquidity. So even though both of my orders got filled at the same price, I added in one case and removed in the other.

    Generally, one would only "cross the spread" if they felt that the price was at the bottom (or top, if one was shorting). After all, if you think it will come down more (if you wnat to buy) then you would place a bid and hope it gets filled.

    Understand, I'm talking about daytrading here, where every penny is important.
  5. robbie25


    No worries, it is a bit confusing at first, but it will get easier. There are a lot of ECN's, but you will generally use a few that you like. Personally, I only used 3 with any regularity, NSDG, ARCA, and BOSX (sometimes EDGE A as well). When you are trading direct market, it is not enough to simply know if you want to buy or sell a need to figure out what exchange you want to do your buying or selling on, and that is going to change depending on your situation adn yourneeds at the moment.

    also, ECN fees are definitely not $0.30/share. I mean, the firm you want to work may CHARGE you that, but that is defintiely not the cost. the more expensive (and highest rebates) ECN's are around $0.0025. In other words, abour $0.25 for every 100 shares. BOSX gives a very stingy rebate ($0.0001...or about $0.01/100 shares) but likewise, doesn't charge a lot either (0.0002, or $0.02/100 shares)

    Remember, all of these ECN's are (generally) business competeitors. They all want youyr business (volume) and so they are constantly changing their fees to be better then the next guy. Sometimes, they'll have monthly specials or whatnot. The more ECN's there are, the cheaper it's going to be to trade, just like any other business.
  7. Thanks for giving me the idea for what the competitive fees are. I will confirm with my manager to what the number is exactly.
    I appreciate your answers. You are very helpful

    Happy trading
  8. The ECNs post their fees on their website.