Liquidity Trading

B

Brandonf

Sponsor
I was just talking to a guy and he is all raving about this "new" concept of "liquidity trading". I guess the idea is that you will provide a market on Attain or Island and then trade for the rebates and try to print a shit load of volume..so like try to do 500,000 shares a day and breakeven on that, then get your $1250 rebate at the end of the day (provided you only provided and never took away liquidity).

My initial impression of this is that its a hair brained way to trade that must have been thought up by a used car salesman come direct access pioneer. It seems to me that if you have a system that does not have a positive expectancy (your trading to breakeven) no matter what you wont win. I used to box until I had to have my brain looked at and I know that whenever I tried to fight just not to get hurt I got my ass kicked. Trading is the same too..whenever Im just trading to "stay alive" I get killed. It would seem to me this "liquidity trading" would appeal to people who have had a hard time over the last few years purhaps and then some shuckster broker tells you...well all you gotta do is breakeven, you can do that right? But when you take away liquidity etc you are paying the full commission, you have to share some of the rebate with the broker (who will get paid no matter what) etc. I might be missing something, but it really seems like a bad idea for traders and something that would just make a broker money and screw the traders.

So, if this is the wrong assessment, please fill me in. Anyone doing this and consistently profitable?

Brandon
 
Did you ever see what was going on in WCOME from May until its demise? There were hundreds of traders trying to make money that way. Many were very successful too. I know a couple guys who were pulling over $100k a month out of the market just through rebates. They were trading way more than 500000 shares a day too - 5-10 million shares would be traded in a typical day. You can still trade like this on PALM and ERICY (although it's not as lucrative), but you gotta be a prop trader at a firm that doesn't charge commissions to make any money at it though.
 
ERICR has had high volume lately, and I know a bunch of guys who were credit trading this stock. Unfortunately, a lot of them lost a lot of $$ the last couple days as it has moved around a lot.
 
Rebates have always been around, but they took hold when after Sept 11th, when the NASD suspended all delistings until after the new year. That meant that stocks under $1, would remain on Nasdaq. If you remember XOXO, MCLD, CMGI, PALM, BVSN, ATHM, ERICY, MFNX, and many others were all in the NDX 100. Mutual funds needed to trade these on a regular basis, and that is why there was such strong volume for the ECN's. Other stocks were great too WBVN, ICGE, INSP etc. And new one's kept coming into play like ABIZ, NXCD, ITWO, INKT, ADLAE, WCOM, etc.

Sounds great right........ but here lies the problem. Many of the stocks are being delisted and others BVSN, RAZF, MSTRD, PALM, are all doing or have done reverse splits. This makes them no longer a good canditate for rebate trading. As the stocks dwindle down to a precious few, those who remain will be chasing down stocks like MTWV, NEOT, ERICR, and INAP to get 1 or 2 flips a day if they're lucky.

It seems that liquidity trading or "flipping" has reached it's peak, and is slowly drifting away, like the stocks under $1. If the market goes up, and doesn't replenish those being erased (like WCOM), rebate trading will no longer be a viable trading strategy, and the 999 ATTN on PALM and ERICY will cease to exist.

Learn how to trade first. Trading will always be around !!!!!

But if we get Nasdaq 800 or less...... then who knows ????

And by the way, Supermontage in its current form, is the death sentence for rebate trading... but that's a whole 'nother story !!
 
I do it now and feel there will always be some stock to trade.

BTW ERICR was my biggest winner! I 've traded for 4 years and trading for credits average 2.50 per 1000 shares net!

I'm small only about 3,000,000 per day, but I make a fantastic living.

I really like to focus on stocks under $7 legging into max positions of 40,000 shares. Next week I will be able to legg into 50,000 positions.
 
In its current form..... albeit, not yet approved by the SEC, supermontage will be the end of flipping.

Take LSPD for example... Their collection rate was somewhere in the neighborhood of around zero percent or somewhere close to that. Those that didn't have a signed agreement with Market XT were getting bills in the mail for ridiculous amounts for shares that were unintentionally executed. MM and direct order entry firms, when they were done laughing..... threw out the bill. The NASD only implies that bills should be paid, but its up to the customer (MM) and the proprietor (ECN) to settle the bill.

It's kind of like me sending you a pizza you didn't order cause I knew you had to eat and asking you to pay whatever I want to charge. Legally, if there is no signed agreement there is no liability, which is why LSPD had so much difficulty.

Take supermontage for example, which will be all autoexecute. Whoever enters the level first will be the liquidity provider. For example ATTN is first and NITE crosses as they do now. NITE will get a bill of $1 per thousand from the NASD and $9 from the ATTN. NITE will pay the NASD and throw away the ATTN bill.

Now the dilemma...... ATTN has promised their traders the money but they aren't gonna collect it. What to do ???? Lower your commissions , like ISLD and ARCA, but how can you pay $2.5 - $3 per thousand on a $2 per thousand charge.

Now its just not NITE that has issues with NXTD and ATTN. Look at how many other market makers cross and trade through them and refuse to do business with these ECN's.

The ECN's can fight back. They can refuse to trade with a MM or Direct Entry firm. In the example above ATTN is showing 999 and nite crosses 1 share to be filled . ATTN can refuse to send them their fill because they wont pay.

If ATTN refuses to send them a fill, here is the death sentence ......... NASD will pull their entire quote because they are deemed to be not bona-fide and the MM can trade through without ATTN being printed. (Yes, even if it is 100 seperate orders totalling 1 million shares EVERY SHARE WILL BE PULLED !!) No one will feel comfortable putting a bid or offer on this ECN for fear of it getting pulled. Or they can fill the NITE and go with the hope that NITE pays them (fat chance) and continue their riduculous payout.

NXTD and ATTN get paid cause most firms agree to hit or lift them. If they are forced to do it like LSPD, they will fall to the same fate.

Also, accidental crosses will be inevitable since they are auto-matched, and ECN's charging a fee will always be behind a MM or ECN's not charging an access fee making flips nearly impossible.

In regards to rebate trading.... that is trading !!! And they can help you defer costs and even profit like the previous post explained.

But thats not liquidity flipping as described in the first E-mail in this thread. When you flip CMGI for 30000 shares at .30 and .31, there is little or no risk in getting screwed. Those are the type of stocks that many flip. Trade JNPR or SUNW..... that is not flipping.

Using rebates to defer costs and add profits is flourishing and will always be there, but again there are risks that the previous trader failed to mention. DO you really believe that someone can flip 40000 shares of NXTL for a flat ???????

Banker
 
Thanks for the explanation banker. Should be interesting to see how this thing plays out. Any idea on when full implementation is going to take place?
 
peeps in navillus flip stocks over 10$/shr for avrg. 300k-350k shr/day . some at nextrade flip over 1mil/day on 2$< stocks and break even
good thread
 
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