Maker-Taker Influences Order Types

Each exchange has their own type of orders, with each order type carrying their own fee schedule.  Nasdaq recently developed a Retail Post Only Order, which was designed for the sole purpose of assisting retail brokers in avoiding access fees.  This particular order type would have allowed for it to cancel for any reason, rather that fill with an adjusted price.

For instance, if a retail broker receives your order to buy at 10.25, and the market is 10.25x10.26, they send it to the exchange to add liquidity, earning a rebate.  Now suppose that just as it sends the order, the market changes to 10.24x10.25.  Your order just became marketable, so instead of earning a rebate for adding liquidity, your broker will now have to pay to remove liquidity!

The Retail Post Only Order protects this from happening by canceling the order if it becomes marketable and would remove liquidity. That order would then likely be re-routed back to the third party that pays for the broker’s order flow to be filled, instead of to the exchange.

Proponents argue that this choice is good for competition that is good for markets.  Opposition to these types of orders claim that these are one- sided order types benefit only the select few while distorting market pricing, which is never good for investors.

Nasdaq withdrew their request for this order type in January of this year, under much scrutiny.  

Add-Liquidity Orders (ALO)

An ALO order is an Add Liquidity Only order, and is executed only if it adds liquidity as a market maker.  The goal behind these order types is once again to assist the user in controlling their costs, and reducing fees.   

They are used, however, to game the system, as entering a marketable ALO order forces the other side, which should have gotten a liquidity rebate, to now be a Taker and incur a cost.  This happens with non-display orders that fall between the NBBO.  If the market is at 10.14x10.16, and I have a hidden order to sell at 10.15 on ARCA, if an ALO order comes in to buy at 10.15, I would become the taker, even though I was there first.  

If my order was visible (NBBO at 10.14x10.15), the ALO order wouldn’t cross at all, it would just sit on that bid at 10.14, meaning a trade that would otherwise occur and aid price discovery doesn’t happen simply due to the maker-taker pricing model.

Great Point Capital has vast knowledge of the market structure and order types, including  available order types to go directly to dark pools, to place orders at the midpoint of the NBBO, or to capture rebates by adding liquidity.  We combine this knowledge with valuable tools like the Takion software platform, to let you direct orders to the venue giving the best outcome.

Great Point Capital has over 100+ prop traders actively trading the firm’s capital, specializing in equities and equity options.  We are headquartered in Chicago with a location in Austin, TX.  Contact Great Point Capital LLC today, in either our Chicago Office, or Austin Office, to learn  how we can successfully trade together generating high performance results.  We are one of the elite few able to offer access to Takion Software, enhancing your online trading performance.