ECN Rebates

ECN traders=scalpers and Warren Buffett says scalpers pick up dimes in front of a bulldozer

 

Thanks for your comments. Much appreciated. I'm not looking to argue either! ;-) Neal

 

Of all the posts I have read on this thread, everyone is pretty much on target. Some houses will give back (rebate) some of the ECN fees if you add enough liquidity.

Trading for rebates only works well for many traders, but not enough to have all traders doing it. I know any traders who trade for rebates only and they do quite well, however, as new rules come out on ECNs in the ensuing months and years, it will be very difficult to trade for the rebate. Additionally, by living in that world alone, you will lose complete touch with the markets, and when the wheels fall off of the ECN gravy train, you'll starve because you won't know how to trade.

There are many that would argue my point here, and many of those that would probably do pretty well liquidity trading. However, there is one ETer who replied to this post that traded for ATTN. When I left that Montvale office, there were approx. 70 traders there and another 150+ trading out of another three offices. I left to setup and run a prop floor for another branch, while trading for myself. I didn't believe in the style of trading for rebates alone. SuperMontage and the ADF crushed the ATTN ECN, and All-Tech reinvented themselves with another ECN, NOCI. During that transition, they're down to one office and maybe a couple of dozen traders. Market makers were getting the ATTN bills and not paying.

They'll be alot of ways to make money trading, many will come and go. The one way that will never go away, is trading. Be well.

 

Rawman is right.

The liquidity game is a dangerous one, just ask some liquidity traders who were trading SIRI last week or SUNW today. When news breaks and you have a 25, 50 or 100,000 share position on the wrong side it gets real painful, real fast. I've seen guys get hammered big time and it takes a long time to get your money back at .002 per share after some thing gets away from you 10 cents with that kind of size on.

It is a legit game but the risks are a lot higher than people truly consider. You are exposing yourself to huge risk everytime because your profit target is $2 per thousand when your risk is $10 per thousand most of the time and sometimes much greater. then you have to consider your transaction costs(clearing , and commissions).

There are lots of prop firms doing it and having some success with it , Swifttrade in Canada is one of them. I do however hear regular stories out of there of guys taking big losses when a stock they are "credit trading" moves on unexpected news. SIRI is a prime example.

 

I trade 100k to 200k of equities per day. Always looking to scale into good trades with good entry points. Once positioned, I begin to scale out on the offer with INCA. Sometimes I leave a bit on the table. But I am just trying to catch the middle of intraday stock moves. This style usually gives me 50-75k shares of added liquidity and that adds up at the end of the month. 2,000 bucks pays my mortgage.

Now consider this, If one pays only .003 base commission and many trades are adding liquidity, those trades are a net .001 all-in.

Of course I am wrong many times and have to bail taking liquidity with no regard for rebates. That would be irresponsible trading.

 

i think if it's done correctly and your trained properly and pick the right types of stocks, it's a great way to earn some $$, especially when you consider the fact the market has not exactly been screaming the last few years....Question for RedWood though: Do you have all ecn's connected to your platforms? and if so, do you have a rebate program for adding liquidity?

 

We have two platforms for equities, Radical, and Redwood Pro.

Radical has direct lines to, and we can offer rebate programs for ARCA, INCA, and ISLD.

Redwood Pro also has direct lines to BRUT, ATTN, and BTRD

 

Thanks for the info...There is no rebates with BRUT or BTRD is there?...More to the point , does anybody use those ECN's anymore? If ever there was an ecn that should offer rebates its those two..

 

BRUT and the other one, collections and Credit risk are the problems. Just like Market XT.

 

I don't think the ECN rebate structure will stop anytime soon.
It has been great to promote competition in trading OTC stocks. The ECNs have been increasingly grabbing market share from Nasdaq (remember all the industry studies said Supermontage would run the ECNs out of business! HA!).

They realize that it is all about where the liquidity is. Offering rebates helps to attract that liquidity, so ECNs are always on the inside bid/offer, and that's where all the trades get done. The ECNs are leading and Nasdaq (now down to less than 20% OTC mkt share) are struggling to catch up, by letting all firms post liq on SM and offering rebates themselves.

The only thing the SEC needs to interfere with is, making the minimum spread .01 and getting rid of all this sub penny nonsense. Or better yet, .05 spreads!