Rebate trading?

Discussion in 'Strategy Development' started by demoship, Apr 1, 2007.

  1. What if.. you have 2 accounts

    - 1 at a standard retail broker that charges a flat rate (ameritrade, $9.99 / trade)
    - 1 at a broker that gives you a "add liquidity" rebate

    You put an order on the books to add liquidity at the 2nd broker... for say 100,000 shares

    You buy those 100,000 shares with the retail broker, pay $9.99, while you're getting a ton more in rebates, then reverse the position.. do that a few thousand times a day!

    Would this violate any laws?
  2. So, you enter your bid for 100k shares on some stock, on INET for instance - however would Ameritrade route your sale to INET, knowing that they would lose 290 dollars (with 0.003 fee for removing liquidity)?
  3. I believe they offer direct access routing.. if not, you can pick a broker that lets you directly route it and charges a flat fee (there's plenty of em)

    Plus if you're offering 100,000 shares, and you put in a 100,000 buy order, the only place they CAN match that order up at is inet (Since i don't see bid/ask sizes of 100K+ too often, and you have to do this w/ a thinly traded low liquidity stock).

  4. N00b question.

    This type of trading = market manipulation = illegal.

    You are faking activity and volume in a stock...
    Totally illegal.

    Even the "intent" to do this is illegal.
  5. Is rebate trading for losers?
    If you "add liquidity" and get a rebate, sure, you've made some money. But at some point you have to unload the position, right?
    What if you can't unload at a breakeven or profitable price?
  6. Yes, you unload the position back to yourself, adding liquidity w/ the rebate account, and removing it w/ the fixed commission account.

    How is it illegal? People did this all the time w/ IB before w/ their 0.2% commission cap (which forced them to change that policy).

    I simply want to arbitrage different commissions.
  7. The ameritrade order will get routed to some place where you'll get screwed and ameritrade makes money.