Reducing Trading Costs with ECN Credits
Active traders can reduce and save their trading costs by slightly altering the entry and exit points, choosing the right order type and routing it to the right ECN. The strategy is widely followed by institutional traders; and retail traders can also practice that. Although the cost saving per trade can be low, it can add-up for a period.
Most of today's stock trading is done through Electronic Communication Networks or ECNs. Many ECNs offer credits to traders for adding liquidity and charge debit (fee) for removing liquidity. For example, ARCA offers 0.0023 ($2.3 for 1000 shares) credit for adding liquidity and the trading charge is 0.003 ($3 for 1000 shares) if the liquidity is removed. For a stock with ask and bid prices of $10.10 and $10.11 respectively, the trader gets credited when he sells at $10.11 or buys at $10.10 (for adding liquidity to the market), and debited when he sells at $10.10 and buys at $10.11. Now for a $5 per trade brokerage fee, the total charge for executing a trade is $2.7 ($5 - $2.3) if you received the ECN credit and is $8 ($5 + $3) if you have not received the ECN credit.
Different ECNs have different credit/debit structures and they also change it with time. Some ECNs do not charge for removing liquidity or they charge very low, making them ideal candidates if you want to trade by removing liquidity; and for trades that add liquidity you can use an ECN which offers high ECN credits. But focusing too much on ECN credits can harm your trades, especially on trending markets where traders cannot wait longer to 'get filled'. There are also many other trading fees which count in the total portfolio return.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
Most of today's stock trading is done through Electronic Communication Networks or ECNs. Many ECNs offer credits to traders for adding liquidity and charge debit (fee) for removing liquidity. For example, ARCA offers 0.0023 ($2.3 for 1000 shares) credit for adding liquidity and the trading charge is 0.003 ($3 for 1000 shares) if the liquidity is removed. For a stock with ask and bid prices of $10.10 and $10.11 respectively, the trader gets credited when he sells at $10.11 or buys at $10.10 (for adding liquidity to the market), and debited when he sells at $10.10 and buys at $10.11. Now for a $5 per trade brokerage fee, the total charge for executing a trade is $2.7 ($5 - $2.3) if you received the ECN credit and is $8 ($5 + $3) if you have not received the ECN credit.
Different ECNs have different credit/debit structures and they also change it with time. Some ECNs do not charge for removing liquidity or they charge very low, making them ideal candidates if you want to trade by removing liquidity; and for trades that add liquidity you can use an ECN which offers high ECN credits. But focusing too much on ECN credits can harm your trades, especially on trending markets where traders cannot wait longer to 'get filled'. There are also many other trading fees which count in the total portfolio return.
NobleTrading.com Offers Online Stock Trading, Online Options Trading
Online Futures Trading, Online Forex Trading
Worldwide Brokerage Service, Day Trading Brokerage
posted by NobleTrading at
9:32 AM
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