Direct ECN Order Routing (which brokerage should I choose)

B

bellman

I would like a brokerage that allows for direct routing of orders to an ECN like ARCA or INET with cheap commissions. My trading strategy involves high frequency trading and only looks to profit $0.05-0.07/trade so order execution is at a very high premium. If there is any slippage the profit is gone.

I was starting to believe that Interactive Brokers might be for me, until I read the following on their website:

"Please note that because IB offers our own SMART routing software, IB does not use ARCA's service (which reroutes orders sent to ARCA to other market centers if ARCA is not at the best price). Consequently, if you route an order direct to ARCA, the order will be executed only on ARCA (even if ARCA is not at the best price). IB therefore recommends that all customers use IB SMART routing."

How good is the smart routing at IB?

What software/brokerage combination would a scalper use? If their is a retail brokerage that is good enough for a scalper it surely is good enough for me.


My sole experience is with E-Trade pro, so I will start by offering what feedback I can here. Smart routing with etrade pro for market orders was good. Market sells were filled on the bid and market buys on the ask. A few times I even got price improvement within the spread. (Note I traded only mainstream stocks with >10M volume and tight spreads). Limit orders with etrade's smart routing were another story. The rule of thumb would be that the market would have run $0.02 past my limit before I saw a fill. Often I would enter a limit and watch many sales at my limit, but no execution of my order. On average 1 out of every 5 smart limit orders were filled with no slippage. This is not good enough for the strategy I was employing which has so little room for error.

On the other hand when I directed my orders to ARCA or INET, I A) could see my orders on the level II screen and B) I actually got good execution. The problem is with commissions of $9.95 flat PLUS 1/2 cent per share fee for direct routing you give back to commissions some of what you are getting in order execution.

The purpose of this thread is to suggest brokers with good order routing and low per share commissions. Please try to include the following information.

1. Direct routing fees
2. Smart routing execution strengths and weaknesses
3. Commissions


Thanks, Bellman
 
Quote from nyc-hotshot:

How many shares do you usually trade per order?
That will come into play whether a per share or per trade deal is better for you.
More...

Thanks for the response.

Answer: Anywhere from 100-2000 at a time, 40-50 times per day, with a mean of 400 shares per transaction.

Note: I am certain that per share pricing is the way for me to go . Pricing commissions is simple arithmetic, and I don't really need help to figure out which broker is the cheapest. If I really needed help multiplying price/share * # of shares... well, that would be bad, and I would have no business trying to make it as a daytrader.


The main objective of this post is to find out which brokers handle order routing the best.
 
If you average 400 shares per transaction, then a per-share would be better for you. Which brokers did you look into so far?
 
You can use any broker that allows you to route out on INET and ARCA.

Most so called "Smart order routers" just use those routes anyway, since they will route to any ecn or market maker if they cant fill you.
 
Quote from bellman:

I would like a brokerage that allows for direct routing of orders to an ECN like ARCA or INET with cheap commissions. My trading strategy involves high frequency trading and only looks to profit $0.05-0.07/trade so order execution is at a very high premium. If there is any slippage the profit is gone.

I was starting to believe that Interactive Brokers might be for me, until I read the following on their website:

"Please note that because IB offers our own SMART routing software, IB does not use ARCA's service (which reroutes orders sent to ARCA to other market centers if ARCA is not at the best price). Consequently, if you route an order direct to ARCA, the order will be executed only on ARCA (even if ARCA is not at the best price). IB therefore recommends that all customers use IB SMART routing."

How good is the smart routing at IB?

What software/brokerage combination would a scalper use? If their is a retail brokerage that is good enough for a scalper it surely is good enough for me.


My sole experience is with E-Trade pro, so I will start by offering what feedback I can here. Smart routing with etrade pro for market orders was good. Market sells were filled on the bid and market buys on the ask. A few times I even got price improvement within the spread. (Note I traded only mainstream stocks with >10M volume and tight spreads). Limit orders with etrade's smart routing were another story. The rule of thumb would be that the market would have run $0.02 past my limit before I saw a fill. Often I would enter a limit and watch many sales at my limit, but no execution of my order. On average 1 out of every 5 smart limit orders were filled with no slippage. This is not good enough for the strategy I was employing which has so little room for error.

On the other hand when I directed my orders to ARCA or INET, I A) could see my orders on the level II screen and B) I actually got good execution. The problem is with commissions of $9.95 flat PLUS 1/2 cent per share fee for direct routing you give back to commissions some of what you are getting in order execution.

The purpose of this thread is to suggest brokers with good order routing and low per share commissions. Please try to include the following information.

1. Direct routing fees
2. Smart routing execution strengths and weaknesses
3. Commissions


Thanks, Bellman
More...

I'm biased but IB's SMART routing is very good and should be better (and cheaper) than just sending an order to ARCA and letting them route it for you. On the commission side, 1/2 a penny per share with no ECN and SEC fees should be a large savings over what you currently have. If in doubt, I'd suggest opening an account IB and another broker and do your own comparison. I'm confident you'll find IB's routing, order types and platform suits your needs and requirements very well.
 
Thank you Sirius trader and nanotick... those are the type of suggestions I was looking for in this thread! I will research RML Trading and Genesis and post the specifics and more questions about them later.

Genesis was already on my list of brokers to consider along with IB, cybertrader, tradestation, and mb trader. I was not at all familiar with RML, though after a quick glance at their website I see that they have an interesting system that offers rebates when liquidity is added to the market and charges when a trade subtracts liquidity. I am unsure exactly what they mean by this as it takes two sides to complete any trade. Perhaps market makers(on either side) are liquidity providers and price takers are liquidity subtracters. I don't know yet and it's too late now to look into it. RML does seem to offer some per share pricing plans which would be a good fit for me.

nyc-hotshot, smart order routing is different than routing your order to a specific ECN, and I remain unconvinced that any brokers smart routing system can compete with the ECN's in terms of speedy order fill on a consistent basis. I could be wrong as my experience is only with E-Trade pro, in which i had great order fill when routing my orders to a specific ecn and slippage when using their smart routing. I have also heard similar statements about other brokers with regards to their smart routing.

GTC, I will stress again that determining whether per share or per ticket pricing is best for me, or any other trader is simple arithmetic. I have listed the brokers that I am considering above. Any info on their order routing or suggestions of other brokers is highly appreciated.


If there is anyone out there who scalps stocks I would love to know what software/broker combination you use.

Thanks everyone for your replies!
 
Quote from def:

I'm biased but IB's SMART routing is very good and should be better (and cheaper) than just sending an order to ARCA and letting them route it for you. On the commission side, 1/2 a penny per share with no ECN and SEC fees should be a large savings over what you currently have. If in doubt, I'd suggest opening an account IB and another broker and do your own comparison. I'm confident you'll find IB's routing, order types and platform suits your needs and requirements very well.
More...

Yes, everything I hear about IB is good... and I think it's so cool that you can trade anything, literally ANYTHING with them... As for opening two brokerage accounts at one time, I'm afraid that ain't gonna happen. I barely have the 25K necessary to daytrade, so I will have to do my comparison shopping one at a time. That's why I want to know as much about them before I wire any money.

I read in another post that one customer had less slippage with IB than with Cybertrader, and now you are another person telling me that IB has good order fills. That is promising, and I love their pricing, but I want it all, so I'm going to continue to look for a while.
 
You must log in or register to reply here.
Back
Top