Day Trading Encyclopedia
Stock Brokers Market Routes
By providing the ability to route orders manually, the trader can seek out liquidity quickly on level 2 to point and click for speedy execution, rather than rely on the designated liquidity provider associated with a flat-fee arrangement. Routing can be done straight to exchanges or ECNs. Many brokers will have a preferred route that may not charge any pass-thru fees. Since routing can be too complicated for new traders, many brokers also have a smart routing function as previously mentioned that uses an algorithm to use the best routing at the time of the order in terms of price and liquidity. Some of the most heavily traded (and liquid) ECNs and exchanges are: ISLD, ARCA, BATS, EDGE, CBSX, BTRD
Like a toll bridge, most ECNs and many exchanges charge a pass-thru fee, if liquidity is taken. This means if a trader buys on the inside ask price or sells on the inside bid price, they will incur a pass-thru fee added to the commission. These can range from 0.002 to 0.004 per share. On the flipside, the trader can receive a rebate if they provide liquidity by offering out shares to sell on inside ask or buying on the inside bid. This takes more patience and timing. The rebates are usually half of the pass-thru fees. It is best to check with the brokerage on the current up to date fee pass-thru fee and rebate schedule to confirm.