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When I submit a trade order, I usually choose the route = Auto. But there is also the option to choose a particular ATS/exchange (ARCA,BATS,TMX Select). I usually leave it to Auto. But is there any guideline to choosing a particular marketplace?

Or is it safe to assume that 'Auto' will automatically send the order to the best marketplace (assuming different marketplaces have different prices for the same security which I guess will be arbitraged within seconds).

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It depends on your cost structure and knowledge of the exchanges.

It could be optimal to make a manual exchange selection so long as it's cheaper to do so.

For brokers with trade fees, this is a lost cause because the cost of the trade is already so high that auto routing will be no cheaper than manual routing.

For brokers who charge extra to manually route, this could be a good policy if the exchange chosen has very high rebates. This does not apply to equities because they are so cheap, but there are still a few expensive option exchanges.

This all presumes that one's broker shares exchange rebates which nearly all do not.

If one has direct access to the exchanges, they are presumably doing this already.

To do this effectively, one needs:

  • Low lag to the exchanges
  • Knowledge of relative exchange fees
  • Instantaneous reaction to market liquidity

For anyone trading with brokers without shared rebates or who does not have knowledge of the exchange prices and their liquidities, it's best to auto route.

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  • Thanks. Can you please elaborate 'For brokers with trade fees...' Don't all brokers have trade fees? How else will they make money? Also when you say:'If one has direct access to the exchanges', do you mean the same as direct market access, because almost all brokers claim they provide it.
    – Victor123
    Feb 15, 2014 at 18:52
  • questrade is cheaper than IB for trading ETF:questrade.com/pricing/commissions But they don't have algo trading APIs like IB
    – Victor123
    Feb 15, 2014 at 19:06
  • Also if you don't mind explaining::'If one has direct access to the exchanges'..is it same as direct market access
    – Victor123
    Feb 15, 2014 at 19:07
  • Thanks. When you said direct access, I thought you were referring to purchasing shares directly from a company through computershare (bypassing the broker)
    – Victor123
    Feb 15, 2014 at 20:49
  • IB does not offer any kind of tax sheltering, how do you find your way around that? This was one reason why I did not go with IB.
    – Victor123
    Feb 17, 2014 at 20:49

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