Is rebate trading with near zero commissions the future of active trading?

Discussion in 'Stocks' started by tm689, Feb 24, 2018.

  1. tm689


    Since the expected profit from trading should be the bid/ask spread minus commissions and fees, will rebate trading be the future of day trading? Since most stocks are now traded in one cent spreads won't capturing the small spread along with rebates be the most consistent path to profitability?
  2. Robert Morse

    Robert Morse Sponsor

    You will not make $0.01 on every trade. Some you will have to break even and have to pay for taking on some. Some you will lose a few cents. Back when Citibank traded enormous volume and moved less than $0.05 in an average day, this worked. Not today.
    comagnum likes this.
  3. tm689


    As the head of a major investment bank recently noted "we are not in the guess what happens next business, we are in the transactional business". On average your profit should be the 1 cent spread. When the market moves in your favor you make 2 or so, when it moves against you might break even or lose 1 cent. On average if you always buy at the bid and sell at the offer your expected profit should be the spread minus commissions and fees.
  4. I recommend you read this book to answer your question:
  5. tm689


    I know this because I started my career as a trading and budget analyst for one of the largest investment banks. The budgeting process for the desks worked by allocating the bid/ask spread in the product multiplied by the volume of the product.
  6. tm689


    Most of the traders who didn't know what their economic function in the market was are no longer traders. Traders provide liquidity. That means making the spread. People who think they can guess market moves hundreds of times a day are probably setting themselves up for disappointment.
  7. NOT! If you're going to make any real money, you need to make significant, unhedged bets on direction and be correct about it.

    "Playing for rebates", "trying to narrow the spread", "seeking slightly lower commissions"... are all "niggling" incidentals. If that's your play, you might as well park your dough in T-Bills and go fishing.

    IOW... You can't "pussyfoot your way to financial success"... if rebates and trying to capture a piece of the spread are your objectives, you're doing it wrong. Those things are incidentals. If you get them to your benefit, that's great... but they won't do much for your P/L bottom line.
    Last edited: Feb 24, 2018
    comagnum likes this.
  8. When I saw the title of this, I thought someone dug up an old thread from 2001.

    Good luck rebate trading against Virtu, Getco, Etc.
    Maverick2608 likes this.
  9. mbondy


    Rebate trading is the past, not the future.

    There actually was a time when, if you were working with a firm that already offered low commissions, rebate trading was very lucrative. Now, the structures have changed, the rebates are minimal, the spread is tight, so not so much.

    Market-making is a computer game now, and they will eat you up. You will never consistently make the spread.
    Clubber Lang likes this.
  10. you can barely get filled on the bid when buying / ask when selling unless the f***ing price is blowing through

    co location and market structure favors the insiders.

    my NAME says it all
    #10     Feb 24, 2018
    comagnum likes this.