Tell me if you guys agree with this... if you are going to provide liquity normally you'd like to provide on ARCA or an ECN that pays you for providing rather than on NYSE which pays you nothing... However, the cost of entering the market on a limit order (bidding or offering) is dependent on where you are in line. NYSE orders will normally get filled first and then the ECNs will get filled due to the fact that people want to take on NYSE. So you are receiving the 25 cents / 100 on ARCA, but my guess is the "cost of entering" on limit is roughly equal to 25 cents / 100 more than the "cost of entering" on NYSE... in the end it all evens out! agree? comments?
Depends on the stock. On something thick that doesnt move you may be correct. In something that is moving rapidly, where you are unlikely to pick the top or bottom, I would think that it would make less of a difference. A lot of people i know dont use NYSE as their first route, however, because they know that they are unlikely (in faster, thinner stocks) to fill their entire order on NYSE. Because the order is not exclusively filled on NYSE, the specialist must ship the order to the ECNs (if you send that type of order, not a DNS), which takes too long a lot of the time. Therefore, they send BATS routed, EDGX/EDGA routed, or NSDQ/Arca Routed.
The way to avoid having your order re-routed to an ECN from the NYSE is to use the new "Do Not Ship" order (DNS) when sending orders to the NYSE. So, "park on ARCA, take on NYSE" is still a pretty good overall rule. Don
I doubt this applies to illiquid stocks. If I enter a Limit order that's gonna sit in the book for 60 minutes... I want it parked at the NYSE... where everybody can see it. For example... Most people trading thru IB and other retail brokers... Are not sophisticated enough to be watching the ARCA book... You cannot even see it via TWS... And SMART does not route much to ARCA (1.5% of my SMART-routed trades execute ARCA). Also... My NET profit on most of my trading is > $0.01/share... So I would not make routing decisions based on potential payoff that's 20% of my expected net. If you care about $0.002 when trading less liquid stocks... Then your profit margins are probably TOO small to be successful... Unless it's very well executed Black Box trading. And in liquid stocks... best of luck to you... Trading against the best traders/technology in the world.
Good point about IB and other retail types, but remember that well over 50% of the NYSE/ARCA volume is from program trading. I tend to generally enter a trade via NYSE based on all the basics like momentum, tick reversal sign, PREM/DISC, etc. and then park my profit target on ARCA, sometimes moving it around with the market. Individual choice of course. Don
Of those only PREM/DISC... Or temporary pricing inefficiency determined by quant analysis... Would matter much for stocks that trade around 50,000 shares/day. And I see no evidence from my stats... That a significant amount of trading for these stocks... Occurs on ARCA (it's low single digits). But overall... Liquidity for these stocks has IMPROVED significantly in the last year... Because every large broker with order flow like IB... Is rapidly moving into the market making business. This may sound ominous... But I would bet that Bright's top traders... Are taking money AWAY from... Most new market making and algo operations that come on stream every day.
We retail types definitely keep an eye on Arca! Shows up in TWS just fine. Though we do hate those occassional 6 share takes by Arca.... but haven't personally experienced one since September.