Best route for passive trading

[TA3]

Great explanations, I wish I read that 2 years ago. That would have saved me a lot of transaction costs.

"The smaller your edge and the more adverse moves against your position you expect, the more
aggressive you should be in terms of price and routes. The larger your edge and less adverse moves against your position you expect the less aggressive you can be in terms of price and routes."

I didn't quite understand why the size of your edge matters. If being aggressive with routes gives you a lower total transaction cost (commission + rebate/(fee) - expected value of adverse selection), then it makes sense to always be aggressive with routes. Am I missing something?

I do understand the part where you can be less aggressive with routing if you expect less adverse moves. But is it really possible to know that beforehand? That's like saying you know HFTs will take a break stealing from that particular stock.

 

[Daal]

What I mean is that if you think there is a high chance that stock will continue to go in your favor (large edge) but you MUST take some off the table for mental reasons (lock some gains), you might be better off routing BATS/EDGX instead of using inverted or balanced ECNs. This is because inverted and balanced ECNs derive their value from the times the price hits their level and reverse (tops and bottoms), if you expect the price to blow through it, it doesn't make sense to use them. But an even superior alternative might be to keep riding the stock, until there is some level of adverse move against you, then you take liquidity and take your partial gains off the table. This is probably an even better alternative

 

[Daal]

However, sometimes, it might not be. In choppy violent stocks (usually thin low float stocks that are priced more than $5 per share), taking liquidity can be quite expensive. In that case you might have to go ahead and use passive limit orders. In those stocks, I'd probably go ahead and make the order hidden as well. The amount of times you will see HFT sitting 1-2cents ahead of your order and only fill you when there is a big burst of supply/demand can drive you nuts. With the hidden order, you tend to get these fills