ECN Rebates: Getting Paid to Trade

Tired of making several profitable trades just to see fees and commissions eat into a substantial chunk of it time after time again?  What if I told you there was a way to actually receive “negative fees”.  That’s right.  You can actually get paid to trade.  How?  Keep reading this article to find out.

You guys may have seen me post P/L screenshots with negative ECN fees such as this one:

and this one…

And I’m getting way too many questions how this is done.  You guys know me, I keep things simple. #KISS

The short answer is I simply add liquidity.  That is, I buy/cover shares on the bid and sell/short shares on the ask.  But of course there’s more to it than that, hence why that’s just the short answer.

First, you need to had a direct access broker  which offers ECN routing options (the broker I use, Centerpoint Securities, has this feature), the most popular ECN is ARCA.  ECNs offer rebates to encourage people to create a market for the security they’re trading.  Secondly, you need to check to see if your broker offers rebates on top of this and whether or not you have to take any sort of action to activate it.  In addition to that, you need to find out what the rebate rate is as well, make sure that your commission rate is lower than the rebate rate or else the best you can do is break even on fees as opposed to achieving negative fees.

Once you have confirmed that your broker has these capabilities, now you can work on the execution aspect of getting rebates.  You qualify to get a rebate if you place a buy/cover order on the bid OR, more importantly, anywhere below the best ask and likewise with selling/shorting.  You can place a sell/short order at the ask OR anywhere above the best bid.  It’s really that simple.

Now you might be thinking, what’s the catch?  Well for starters, we already know that if you’re trying to wait for an execution, you might miss the fill and therefore the entry/exit that you want.  In a fast moving environment, this is something that might work against you.  You may be better off just taking liquidity so that you can get in and out of something instantly.  It takes practice to get the timing right so if you’re new at this, that’s something to probably focus on.

Another thing that I notice is that sometimes rebates sometimes are credited at the ECNs discretion for various reasons so I’ve observed many instances where you should be getting a rebate but end up getting debited instead.  Officially, the explanation I got was because my order was rerouted to a different destination and when that happens, it disqualifies me from getting a rebate, which I feel is absolute nonsense because I had no control over the rerouting of my order.  It doesn’t happen that often it’s just something to consider.

When done correctly, the result is beautiful.  Negative fees.  Congratulations!  You’re actually getting paid to trade!


How Madaz can help you

Tired of never having shares to short? Does your broker just plain suck?

Madaz recommends Centerpoint Securities as the preferred broker.


Tired of getting late alerts and getting dumped on by your guru?

Madaz recommends Trade-Ideas as the preferred stock scanner.


Are you often missing big moves because it takes you forever to find out the catalyst?

Madaz recommends Benzinga Pro as the preferred Live News Feed service.


Affiliate Disclosure: I know what you're thinking. Madaz, ya sneaky bastard, trying to sneak in some affiliate links. Any compensation I may receive from this will pay for big macs on days where the market isn't feeling so charitable. For a more complete version of this mumbo jumbo, please click here.




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