Hey everyone! Ross here from Warrior Training So in this video, I'm going to talk about direct access routing. Going to talk a little bit about adding liquidity and removing liquidity. These are things that active traders need to know about. So when we're trading, we have a multitude of different ways that we can send our orders to the market.

So with online training that really picked up in the 90s and it's really just grown and grown from there from our home offices, we have the ability to send orders directly to the exchange directly to the market. But how our order gets sent from our computer to the market? well, there's a lot of different ways that can get there. Some are going to be very fast, some are going to be a little bit slower. So as an active trader, you want to find the best path between your platform here and the market.

The cool thing with direct access routing is you can choose the path that you think is best and it could be best based on speed. or it could be best based on cost. It depends on your preference or it could be best based on the type of order you're sending. so there's a lot of different variables.

Now when I trade every single day I Send my orders using Nasdaq Nasdaq isn't ecn. it's one of the market makers that you can send your orders through. So think of your orders as basically passing a bridge to an island. The market is the island.

The bridge is the path to the island. And this island which let's say is the current price of Apple. Well that's the current market price. You've got all the buyers and all the sellers there on the Apple Island and each one of these market makers are ECNs is a different bridge to the island and each one charge is a toll to pass your shares through that bridge through that.

ECM So one of the things that's very interesting is that when we pay and this is not, this does not correlate super well in this analogy. But when you add liquidity to the market, you actually get the opposite of paying a toll. You get an Ecn rebate. No, Tollbooth does.

It's no tollbooth gives you money when you go through it. So this is where the analogy stops. but with these different routes, some of them will give you a rebate for adding liquidity to the market. So let's look at the trading platform here.

this is Lightspeed and this is the current Apple the current price of Apple right here and this is my order entry window and when I go to my order entry window you'll see market and from market. I have a drop-down where I can select eat any one of these ECNs and through this selection I'm choosing how I want to send my order to the market Now right here. I See ARCA is selling a thousand shares at one forty to fifty five. so I could go and buy those directly from ARCA by selecting ARCA right here.

Let's see there we go. All right now. The thing is, if I choose Nasdaq that doesn't mean that. Oh, I guess I'm gonna have to buy at one Forty Two Fifty seven.

Nasdaq has an obligation to reroute your order to get you the best current price and so they will end up sending your order directly to knock to ARCA and you will buy those shares. But of course it would be a little faster to just buy them directly from ARCA rather than sending it to Nasdaq and Nasdaq then rerouting your order. So for me, I just always use Nasdaq by default even if I see ARCA or Edge X or Batts as the current market maker selling the shares, I use Nasdaq because it's one of the markets that has the most liquidity. It means that I can almost always get in and get out quickly using that Ecn.

and the cost is for me, negligible. So I'll talk about costs in a second. But it's important to know that from most brokers, you have the options. There are some that don't give you any options at all.

You can only use their smart route, which is a disadvantage because you want to have options. So right here at Lightspeed Calm slash pricing slash routing - fees. you have the routing fees. So we're going to look at liquidity first.

Taking liquidity is anytime you press an order and it immediately goes through. So Z Vzzt This is a Nasdaq test stock. I'm not sure if it will work after hours here, but we'll find out. Let's see, let's just try to place this order.

No, it's not gonna go through. That's fine though. So in any case, if you place an order and the second you press the Buy button, the order goes through. What you've done is you've taken liquidity from the market.

There was someone selling shares and you bought those shares. You took them away. If you press the sell button and it immediately fills. You just sold your shares to a buyer and again you took away from the market.

You took liquidity out of the market. So when you take away a liquidity, you have to pay for it. So LSP T which is the Lightspeed smart route they charge you point Zero Zero One Five per share. That means if you take a thousand shares, you're gonna pay a dollar fifty.

All right times. Point Zero Zero One Five is a dollar fifty for every 1000 shares. That's called an EC N fee. Now you'll notice that LSP T charges you both when you take liquidity and when you add liquidity.

and there's others that are the same way. But here we have our gun. ARCA charges you twice as much when you take liquidity. So it's not dollar fifty, It's three dollars for every thousand shares.

Alright, so that's a bit more expensive, but when you add liquidity, they give you back two dollars. So if you use ARCA then you might only be out-of-pocket $1 if you take acquitting and add liquidity in equal proportions. Alright, so what does it mean to add liquidity? Well, if you place an order right here to buy this stock at let's say a nine dollars and fifty nine cents this would be and I don't know this will go through over there. -.

Okay, this is adding liquidity because I just put these shares out to the market as a buyer and my order did not get filled immediately. So the easy way to know that you're adding liquidity is your order does not get filled instantly because you're you're now adding to the market. If your order gets filled instantly, you took from the market and you are taking liquidity, you're gonna pay for it. If you have to sit and wait, you're adding liquidity.

The other way of knowing is if your order is outside the current bid and ask, you will almost definitely be adding liquidity. So if I put a sell order at well, thirteen, then I would be adding liquidity 13:01 Officially would be adding liquidity $12.99 If I have to wait there for a while because the order wasn't instant, then I will probably also be adding liquidity. Now if you're someone who's thinking, well, geez, I'm just going to buy 10,000 shares down here at 98 so look, I'm gonna add liquidity on my buy order and then I'm gonna go ahead and sell it at 13, you know? Oh one. I'm gonna add liquidity on both sides I'm gonna make $2 for every thousand shares as a buyer and I'm gonna make $2 for every thousand shares as a seller because I'm adding liquidity both ways.

That's an extra. you know, $4 for every you know 2,000 shares? Okay, well, you know that's a possibility. However, one of the things that you have to be aware of is that because ARCA will reroute your order to get you the best fill. When your orders get rerouted, you're not always able to collect the rebate.

So that means you would actually have to go into your settings and under your custom orders and your sell order. You would have to call it a non-routable order. Which means do Not reroute the order. This is not something I would want to do.

It's much more important that I get out at the current price that I want to get out at and then make an extra two dollars or four dollars on ecn rebates. So I don't base my trading on trying to make a little money on ecn rebates. To me, it's not worth it. but because it's part of my practice to sell shares on the ass to get the best, it will just happen that probably about a third at the time I am collecting Ecn rebates and that does help offset the cost of commissions.

So I'm currently using Nasdaq right here. it's three dollars for every thousand shares that I take and two dollars for every thousand shares that I add. So I'm net probably paying about dollar 50 because I give back liquidity about a third of the time and that's about the same as what I would be paying here with LS PT So you know really, to each their own, you're not talking about a huge difference. You can go here and look at the different routes available and also be aware that there are some customs some custom ones are interesting ones for dark pool routing which isn't something I'll talk about in this video, but is something we'll talk about in some other videos.

All right. So I hope this has helped you get a better understanding of direct access routing and how you can use it to get your orders to the market a little bit faster. As usual, any questions don't hesitate to reach out if you're still watching. You must have really enjoyed that video.

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