The BIG ECN Thread - get those costs down!

A

AndyC

Hy all

First off all please excuse my English, it is only my 3th language and it still has to become a lot better... ;-)

I trade since about 2 years and I am on the swtich to start trading fulltime. I used probably a lot of plattforms out there, like LIghtspeed, Sterling, Laser etc.

The reason for this thread: I am a scalper and one of the most important things for my trading, is to trade for very very low cost. Therefore order execution is one of the most important things in my trading. Currentyl I remove liquidity on my entry via EDGA and add liqui. on my exit via BATS.

I have some good connections to some traders which really move a lot of money out there and discussing ecn passtroughs/rebates we always finish our discussion with the same "post":

THere is so much inefficent trading out there... ANd the hole problem normally is, that people don't care about order execution and ecn passtroughs/rebates. The fees for removing via ARCA, NASDAQ, BATS, EDGX are still MUCH to high and I really hope all sclapers out there stop to use them for removing liquidity... Those passtroughs much become SO MUCH LOWER in the near future I hope... Any thoughs about this subject from other traders would be appreciated!!!

I only would like to use this post to always inform about changements in ecn fees/rebates. For example I saw that EDGA now costs me 0.0007 to remove liquidity... Do you guys know other great routes out there? I unfortunately have to use Sterling now and I do not have ROUC as I had with Laser... SO now I hit EDGA only. BOSX is free to remove isn't it? is it liquid enough? I still add: I trade SPY and SDS's only.

Kind regards and I am looking forward to this discussion and this trial to cost-pressure ;-) for all the heavy expensive ecn's out there...

AKS
 
Most ECNs still earn their income from the Add/Remove liquidity spread, so it doesn't make sense for them to lower the fees for removing liquidity, that would mean liquidity providers would likely choose another venue.
 
thansk for your post man! HOwever this still doesn't explain why so much guys hit ARCA, Nasdaq, BATS etc. for removin liquidity... Do they not care about the money??? Especially when you trade some size, to pay 0.0025 and more - this is a lot of money... You go long 10K shares and pay 25 bux for this? We do not understand this...
 
Quote from AndyC:

thansk for your post man! HOwever this still doesn't explain why so much guys hit ARCA, Nasdaq, BATS etc. for removin liquidity... Do they not care about the money???
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Maybe because ARCA, Nasdaq, BATS provide the BBO at the time. Why should the liq taker who wants to take immediately suffer cost of 1c (or more) per share rather than pay a take fee of 0.3c per share?

US equities are a fragmented morass and it's far more complex than simply selecting exchanges based on the best take/add fee/rebate for whatever side you're after. The presence of broker/dealer internalization and payment-for-order-flow make it all the more difficult, e.g. as these may compete in largely unpredictable (from the outside) ways with take/make pricing structures. Etc.
 
o.k. thanks for post Occam

I still have to add something here - to make this clear:

I trade only SPY and SDS's. Those are very liquid and have a deep big and ask at almost every price level. There is no question about BBO in this kind of symbols.

So, again: lets say I go long 10K shares in SDS's. And I want to get my shares right now and hit the ask with 20K shares. Why sould I trade via BATS, ARCA or Nasdaq??? There is no reason at all... Whit the order routing options today you can make sure, that your order first tries to hit all free ecns and market makers , then goes for EDGA (you pay 0.0007) and after goes for all the hardcore-nasty-expensive-stuff... Then maybe you at least make sure that 8K shares hit free ecn's or low-priced ecns like EDGA and only one part of your orders hits NYSE etc.

So: what is the reason all guys hitting other high-priced ecn's when we have enough orders showing up in all the free ones and the chep ones???
 
Quote from AndyC:

thansk for your post man! HOwever this still doesn't explain why so much guys hit ARCA, Nasdaq, BATS etc. for removin liquidity... Do they not care about the money??? Especially when you trade some size, to pay 0.0025 and more - this is a lot of money... You go long 10K shares and pay 25 bux for this? We do not understand this...
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They do it because those venues have size. You mentioned you trade SDS and SPY, both highly liquid, for midcap individual stocks you'd lose full cents off that trade, making the rebate look like peanuts. Realize that plenty with a longer time-frame don't pay attention to it and go where the size is, it's just one less thing to consider for them. There is no one-size-fits-all solution here.
 
Quote from d08:

They do it because those venues have size. You mentioned you trade SDS and SPY, both highly liquid, for midcap individual stocks you'd lose full cents off that trade, making the rebate look like peanuts. Realize that plenty with a longer time-frame don't pay attention to it and go where the size is, it's just one less thing to consider for them. There is no one-size-fits-all solution here.
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Thanks for your answer! I completely understand, that for midcap stuff and all the symbols which are not heavy liquid it makes sense to hit the ecn which provides the nbbo - regardless of how much you pay.
Also I unterstand that longer tf-traders do not really care about which ecn the hit, because often the ratio "average profit/loss / commission (commission and passtrough/rebate)" is much less important for them then for example for me.

However I think, that when you trade highly liquid symbols (as SPY, SDSs, DIA, QQQ, CISC, INTC etc.) which the most of people I know do trade, it does not make any sense to hit an expensive ecn as ARCA, BATS or so. If you go long 20K shares and you trade them via EDGA instead of ARCA, you pay > 4 X less commissions. When you get out via BATS, you make more money then with the most other ecn's. So: If you remove liquidty, do use routs which hit first the free ecns, then for ex. EDGA and then for ex. the NYSE specialist or later even expensive crap like ARCA and co.

But it still makes sense, regardless which tf you trade, to hit only ecn's which are free or which do cost very little. Commissions add up heavily, even for a longer tf-trader... I understand people hitting mid-point-expensive ecns - but all the others I do not understand and I have the impression, that often it is only, because they do not really understand much about order execution...
 
Quote from theprophe:

what are the free ecn's?
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Please excuse my late answer... to all guys who wrote me PMs: thanks so much for it!!! Just noticed now that I am able to read them, gonna answer you soon!!! thansk so much, great forum here!!!

So: free and cheap ecn stuff :-) :

EDGA, curretnly at 0.0007
http://www.directedge.com/Membership/FeeSchedule/EDGAFeeSchedule.aspx

Nasdaq OMX BX: 0.0005 rebate.
http://www.nasdaqtrader.com/Trader.aspx?id=bx_pricing

BYXONLY: 0.0003 I think.
CBSX: Think they have reabte too.
CSA/CSN/CSP/NYMP: you pay abou t ~ 0.0012
some others, also mm's like GETCO etc. there are also a lot of other sepcial routes, customized routes I mean like for ex. ROUC on Sterling and/or Laser I think. you also have darc pools etc.

So far I have only set-up EDGA at my desk... gonna hopefully change soon. EDGA is nice and liquid, don't know so much about the other ones in terms of liquidty. Any comments and experiences would be appreciated!!! Also it would be nice to mention the prop firms whcih are good in setting up customized routes etc. most of them have no damn idea about it.... My current desk is great because it gave me a very nice deal in terms of commission/clearing rate I mean. But in terms of routes it is bull***.

Kind regards

AKS
 
Quote from AndyC:

Thanks for your answer! I completely understand, that for midcap stuff and all the symbols which are not heavy liquid it makes sense to hit the ecn which provides the nbbo - regardless of how much you pay.
Also I unterstand that longer tf-traders do not really care about which ecn the hit, because often the ratio "average profit/loss / commission (commission and passtrough/rebate)" is much less important for them then for example for me.

However I think, that when you trade highly liquid symbols (as SPY, SDSs, DIA, QQQ, CISC, INTC etc.) which the most of people I know do trade, it does not make any sense to hit an expensive ecn as ARCA, BATS or so. If you go long 20K shares and you trade them via EDGA instead of ARCA, you pay > 4 X less commissions. When you get out via BATS, you make more money then with the most other ecn's. So: If you remove liquidty, do use routs which hit first the free ecns, then for ex. EDGA and then for ex. the NYSE specialist or later even expensive crap like ARCA and co.

But it still makes sense, regardless which tf you trade, to hit only ecn's which are free or which do cost very little. Commissions add up heavily, even for a longer tf-trader... I understand people hitting mid-point-expensive ecns - but all the others I do not understand and I have the impression, that often it is only, because they do not really understand much about order execution...
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Long term investors don't care too much about rebates, since they're only making a handful of trades per day (or even per week or more) they tend to prefer using a smart router than worrying about selecting ECN's and such... (many of them don't even look at the L2 when trading...)


On the other hand... The cheaper ecn's are usually the first ones taken out before the price changes... not sure if you see this in SPY and such, but you can definitely see it on slower high volume symbols like C, GE or BAC. Once the cheaper ECN's are taken out you have 2 choices, take out an expensive ECN and pay fees... or wait to see if the cheap ones fill up again... at the risk of having to spend a full extra penny for getting filled at the next level...
 
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