If INET and ARCA charge 0.003 to remove liquidity from them, how is EDGX able to charge only 0.0025 to route out to these other ECN's? Is the EDGX ECN effectively losing 0.0005 per share every time they route out to another ECN? I'm assuming that when ECN A removes liquidity from ECN B, then ECN A has to pay ECN B the "remove liquidity charge", which is 0.003 for INET and ARCA.
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Is EDGX losing money when routing out?
- Thread starter giggollo
- Start date
Quote from giggollo:
If INET and ARCA charge 0.003 to remove liquidity from them, how is EDGX able to charge only 0.0025 to route out to these other ECN's? Is the EDGX ECN effectively losing 0.0005 per share every time they route out to another ECN? I'm assuming that when ECN A removes liquidity from ECN B, then ECN A has to pay ECN B the "remove liquidity charge", which is 0.003 for INET and ARCA.
yeah they lose on that, but they probably make up for it on market data revenue. I could be wrong, someone who knows better please feel free to comment...
- mnx
Maybe they match internal trades, saving them a little cash.
wow, you're the only person i know of that uses EDGX that heavily...for your style of trading, im assuming that its not important for you to get your buy orders filled on the bid, because if thats the case, then i dont see why you would go with EDGX..it's true the rebate is higher, but from what i can see, most of the volume will trade first with INET and ARCA if they are on the bid with you...at least that's been my experience on NASDAQ stocks..perhaps you mostly take liquidity and route out, in which case ud pay less with EDGX, but again i dont know how good taking or routing out is with them...
Quote from giggollo:
If INET and ARCA charge 0.003 to remove liquidity from them, how is EDGX able to charge only 0.0025 to route out to these other ECN's? Is the EDGX ECN effectively losing 0.0005 per share every time they route out to another ECN? I'm assuming that when ECN A removes liquidity from ECN B, then ECN A has to pay ECN B the "remove liquidity charge", which is 0.003 for INET and ARCA.
You may want to add another zero in there. .00025 In that case, they are losing more.
Transaction Charges for RDOT Strategy
Accessed Venue Routed Liquidity in ETFs Routed Liquidity in NYSE Listed Routed Liquidity in AMEX Listed AddLiquidity Flag
NYSE, BOSX, CINN, XMSE, PHLX, ARCA, BTRD, NASDAQ $0.000225 $0.000225 $0.000225 9882=D
Loss of about .00278 per share
Quote from giggollo:
wow, you're the only person i know of that uses EDGX that heavily...for your style of trading, im assuming that its not important for you to get your buy orders filled on the bid, because if thats the case, then i dont see why you would go with EDGX..it's true the rebate is higher, but from what i can see, most of the volume will trade first with INET and ARCA if they are on the bid with you...at least that's been my experience on NASDAQ stocks..perhaps you mostly take liquidity and route out, in which case ud pay less with EDGX, but again i dont know how good taking or routing out is with them...
I've only been trading with EDGX for a week, but consider myself to be almost an 'expert' with them at this point (I talked with them extensively at the Vegas expo and have talked with them several times per day each of the past ~4 days). Some general comments:
1) EDGX is awesome for marketable orders on Nasdaq (and from what I understand from the experiences of other knowledgeable traders, they are great for marketable NYSE orders, as well).
When you send a marketable order to EDGX, the order goes through four steps:
a) Checks for liquidity on the in-house EDGX book (the book is very thin, and you won't get many fills => You are charged 0.28 cps to remove liquidity from the EDGX book); likely <2% of marketable incoming orders filled here, if not filled:
b) The order is routed to their 'dark book' liquidity providers. These dark books are simultaneously given the order, and if any chooses to fill it, you get a quick fill (Cost is 0.25 cps to remove liquidity from the dark books). Note that the dark books only have 50 milliseconds to respond or the order before it 'times out'. Roughly 30% of incoming marketable orders are filled by the dark books => a very good source of liquidity, IMO. If not filled here:
c) The order is routed to the 'market' for a fill. In other words, the order goes to INET, ARCA, or whatever market is shown at a matching price to your order.
d) If no matching order is found in the market, then the order is posted on the EDGX book.
Note that the above sequence is what happens for a EDGX 'ROUT' order. You have other order handling options to bypass the darkbooks altogether ('ROUX' orders) or only send to EDGX book and dark books ('ROUZ' order), etc.
To answer your initial question. How does EDGX make money charging only 0.25 cps to remove liquidity? => A couple of factors help them to do this.
First, for any orders that are filled on their own ECN, the charge clients 0.28 cps to remove liqidity (0.30 cps if your firm does less than 200k shares per month, which is likely very few firms) while paying a rebate of 0.25 cps. So for these orders (filled within the ECN) they make a spread of 0.03 cps.
The order executed on the darkbooks generate the most revenue for them. They charge you 0.25 cps to remove liquidity, while paying zero rebates to the darkbook firms that are adding the liquidity.
For those orders routed externally to the other markets (INET/ARCA/etc), the situation is not as bad as it seems. Since EDGX is owned by Knight Trimark, they do HUGE volumes on all the ECN's. As a result, they get favorable super-volume rates on the ECN's that aren't typically available to the rest of us. In other words, they are not paying 0.30 cps to remove liquidity. I believe they pay 0.28 cps, and so incur a small loss on those externally routed, non-darkbook executions.
I hope this helps. For what it's worth, I've executed over 150k shares with EDGX in the past 3 days, and the fills have been better than any other route (INET, ARCA, SOES, etc) for marketable orders. I would not use them for non-marketable limit orders, since as has been pointed out, they will typically not get a fill until after INET/ARCA/etc has already filled a similar order. But, for marketable orders, I highly recommend them.
Best of luck,
-Eric
P.S. Unless explicitly stated otherwise the above refers to Nasdaq stocks using the EDGX 'ROUT' routing method (that enables external routing). Also, before I receive accusations, I am not affiliated with EDGX in any way. I am just excited by this new route, and have learned a lot about it in recent weeks.
Quote from JMartinez:
You may want to add another zero in there. .00025 In that case, they are losing more.
Transaction Charges for RDOT Strategy
Accessed Venue Routed Liquidity in ETFs Routed Liquidity in NYSE Listed Routed Liquidity in AMEX Listed AddLiquidity Flag
NYSE, BOSX, CINN, XMSE, PHLX, ARCA, BTRD, NASDAQ $0.000225 $0.000225 $0.000225 9882=D
Loss of about .00278 per share
Oops, forgot to mention i was referring to NASDAQ stocks