Page 288 - THE MARKET WHISPERER

284 PART 9 - The Trading Platform

When I open the routing dropdown list [1], I can choose my order type
(limit, market or stop) and where to route it. As you see above, the first
three orders are the ones I generally use. If, however, I want to direct my
orders to other destinations, I can choose from many options.

Why might I want to change the destination? Notice the amount of
sellers on the ASK side. You can see that the first seller, with an amount
of 2100 shares, is ARCA, and the second, with 1200 shares, is NASDAQ. If
I am interested in buying up to 2100 shares, I would choose the ARCAL
navigation, click the button and buy the shares direct and fast via ARCA. On
the other hand, if I want a larger quantity, I would need to buy shares via
the other, NASDAQ ECN marked as NSDQ.

The advantage of ARCA over many other ECNs is the speed and nature
of its operation. If the entire amount sought is not on ARCA, they commit
to finding it for me from another ECN or market maker. In other words,
they will supply me with 2100 shares which they are holding, and then buy
the rest from another ECN. In my opinion, ARCA does the work better and
faster than other ECNs, although if you are buying very large quantities,
you may need to route your orders direct to different destinations.

Adding and Removing Liquidity

ECNs compete with each other and try to attract traders to their services.
The more one ECN’s market depth increases relative to a competitor, the
more traders will use its services and pay its commissions. When I buy
stock displayed by a buyer in the ASK column, I am “removing liquidity,”
meaning that I reduce the number of sellers of the stock I bought, which is
not good from the ECN’s point of view. When I sell shares to a buyer on the
BID side, I am removing liquidity of buyers, which decreases market depth.
For removing liquidity, I pay the ECN a commission of $3 for every 1000
shares. This commission is in addition to that which I pay to my broker, and
the broker passes that extra commission down to me. These are known as
pass through commissions and are collected separately from the regular
commission agreed upon between me and my broker.

Another cheaper possibility is to position my buy order on the BID side
and wait for a seller to offer shares to me, instead of buying direct via the
ASK. When I do that, I am actually adding liquidity, and for that the ECN
gives me $2 for every 1000 shares, which the broker also passes along to
my trading account. In other words, I have just reduced the costs of my
trade. The advantages of this method are dual: I receive a commission
instead of paying it, and I buy the stock at one cent less, which is a saving