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[Music] hey guys welcome back to a brand new educational video we're going to talk today about different order types that you can use to send orders to the market and the difference between the concept of adding liquidity versus removing liquidity in previous videos we've discussed the level two and how important the information displayed on a level two is we've talked about the time of sales and how important those prints are now we're gonna go one step further and talk a little bit about adding and removing liquidity so depending on let's bring the guys in here and kick things off depending guys on what type of trader you are you may lean more to the adding liquidity column versus the removing liquidity column and I speak more to you know momentum training versus maybe market making where you're just trying to capture the spread but so many different concepts here let's jump into adding and removing liquidity yeah I think it's it's always informative to start with the extremes when you talk about momentum trading or a market making and market making I'll start with you there because it gets down to the nuts and bolts of adding and removing liquidity that just simply means being an active trader on the best bid and the best offer and all you're actually doing is providing liquidity by bidding the best possible price in this case I'm looking at Ford it's a $5 stock it has a one cent spread the best bid is five dollars and thirty nine cents the offer is five forty now if you want to buy shares afford right now there's two ways you can do it you can sit here pick one of these gateways arca Nasdaq edge X and insert yourself in the book wait in line at 5:39 and get long or I can say hey I want to buy it right now this is going to 5:50 any second now let's go get 540 people offering to sell there's tens of thousands of shares on the offer let's just go pick it up obvious advantage of the getting 39s is you get a better price the advantage of getting those four teas is you get an execution right away that's guaranteed the other thing you got to consider there which is important and a lot of retail traders don't consider this is the cost here and for a prop trader that can be a big deal shop I mean cost is exactly the biggest problem for most traders especially act traders like you just mentioned there for me for example I'm always roughly between 150 to 200 pills per day so if I can add liquidity I would really save on fees as we progress through a month I mean if you're talking about even saving $1.00 per trade you make 13 15 20 trades a day it adds up over a month a couple hundred dollars and I mean I think that in general if you're looking at fees I mean when we're filming this one we are now in May of 2020 you get roughly $2 for every thousand shares that you add liquidity on a produced market like ARCA or edged a corn as DAC year so yeah you get Rue quiddity very important to add liquidity to books because it saves on that fee and I mean I can't emphasize that enough we're looking at GE here and just to buy at three at six dollars and 33 cents you put a thousand shares there and you get filled on and like I said in ED Jack's you're gonna put that two dollars in your pocket pocket that's per thousand shares guys so when you make the spread if you want to make the spread out about thirty four dollars yeah you're reining in the money there because you get pinned out and you get the two dollars plus the dollar gross so that's ten dollars on the gross plus the two dollars so you're making twenty percent more just by adding liquidity a very important part that a lot of traders don't understand yeah I gotta jump right in here because any time it's about making money you want to make sure we understand exactly how to do it if you have a direct market access here in the New York Nasdaq the US markets it's gonna be similar trading in Toronto as well there's something called a maker taker model and what shawne's talking about is exactly that example if you are giving liquidity to the market by waiting in line providing to the market you get paid to do so the fees may vary it's important to know what they are but the other thing you have to consider here is there are other types of venues and there's some that are called reverse model gateways and when you're removing liquidity of these are important in these cases if you post to the bid if I bid here on on Ford and I go on edge a or boss xb8 ey they're going to charge you to add liquidity when you remove liquidity they're gonna pay you a small fee now why would I why would I want to do that think about it this way if I want to remove liquidity and buy right away imagine that I can get paid to do so now intuitively speaking obviously those lineups are gonna be short here why because the first thing to go is going to be the cheapest fill certainly the one that pays you but if you want to buy 40 ones and you know you want to do it right away you snag that and put money in your pocket on the flip side if I want to make that spread as a market maker and I want the 40 fill so I can get out at 41 maybe I'm moving 10 20,000 shares and want to make a couple hundred dollars getting that fill first could matter what's gonna fill first look at the person who's trying to sell at 40 they want to pay as little as possible those reverse gateways edge a boss X that why they are gonna pay to remove liquidity so someone's gonna hit those first if I want to get that fill first I jump on that gateway so you have to consider those fees the maker taker model reverse gateways when you're considering what gateway to sit on whether you want to capture that spread whether you want to make that fill as soon as possible very very important information guys now you may be sitting there wondering you know no one ever told you that you can actually get paid to trade and yes you can get paid to trade but you have to have direct market access so the next thing we have to understand here is the different order types obviously there's going to be many different order types when it comes to the individual gateways that we were just mentioning Sonia was just touching on the difference between inverse and or passive gateways and the different order types that you have to have an understanding of when it comes to sending your orders to the market so let's dig into that a little bit further here and talk about the different order types guys so if we're looking at say let's bring up maybe Apple I'll just throw that out there let's talk about Apple somebody who's trading a momentum style strategy is not going to really be too concerned about where they're getting filled but hey if we can save them a few dollars here and there when it comes to how much fees they're paying why not let's jump into how we can save a little money from using the right order type on the right gateway yeah I mean the first thing to consider is that what's available to you oh if I pull up Apple here you are going it's a moving a little bit faster there are limited numbers of gateways on each individual level but typically you'll see some of the big ones Nasdaq ARCA edge X so if you know that there is always going to be a few hundred shares of liquidity on those three and you find the one that's the cheapest to remove liquidity from that way when you want to get in quickly to catch the momentum on on on Apple you use that gateway knowing you'll get that liquidity I think it's more important necessarily on the way out because you're trying to catch that fill so you might be active on the way and a lot of traders are gonna be passive on the way up meaning they're waiting at a key level they buy at 3:15 they want to sell at 3:20 let's say so they throw an order at 3:20 and wait well it's a key level you might want to catch that fill if it doesn't go through I want to get to fill anyways sit on the Gateway that's printing heavily and I think that's where you might consider if I'm taking $1 worth of growth do I care about a couple of cents when it comes to the feeds in that case you're probably not going to and that's why you will literally just pick the gateway that's gonna give you the fastest fill and a lot of times you can get that information looking at your time in sales or simply watching to see what's at the level to and what is gonna be prominent for sure I mean I opened up the keyboard set up here as well and what you're gonna want to do if you're going to try to add liquidity very very important like Neal just mentioned there that you pick the right gateway we're fortunate enough here to have access to a very wide variety of gateways here probably over 30 different routes different options to choose if I'm going to trade nasdaq:aapl is located on NASDAQ so I have a Nasdaq key set up here and look at this guy's limits versus market orders if you're gonna hit a limit order then you can specify the price and when you put a pending order out that's when you actually get access to the liquidity on the adding side of things so watch this I'm gonna put an order out right here we're gonna get cancel cancel so I already have my Nasdaq bid set up and what we're gonna wind up doing here and it's gonna be hard you're not gonna be able to see my screen but if I go down here and I hit the bid it's gonna automatically come up at the level 1 price these are buy orders if I put this bid down here at 3 1750 let's just say for a hundred shares I hit enter my shares now pending and I'm in a lineup all the way down here guys at 3:00 1750 that's fine as Dec order they're very hard to see but that's a pending order if the market comes down and fills me I get that rebate that is called adding liquidity I am adding myself to the level to a very very important aspect to understand guys if you mark it in then you're gonna get long in this example right away and you are going to pay which ever gateway you routed to so that is removing liquidity you are physically taking shares out of the marketplace and paying that price adding you're putting yourself back into the marketplace at a lower price than the best bid and removing your aggressively going out reaching for shares and taking them from the market and getting an instant fill you'll pay for those every time yeah I gotta take it one step further because I think it's an important point we're removing liquidity I actually have my keyboard set up and it's gonna look ridiculous for the Nasdaq look at all these different gateways no market keys are set up they're exclusively limit orders now there's a couple of things to consider here if I want to aggressively buy Apple I can bid at three seventeen sixty which is the best offer if I want to buy a thousand shares there's not enough liquidity at that price I could maybe bid all the way up to three seventeen sixty two to get that fill in that case it's called a marketable limit order because it will execute at the market but I am trying to get more trying to get a price higher than the current ask now why won't use a market key because that's gonna bid to infinity essentially it's gonna cross up and pay any price I always say there's a price you're not willing to pay when you're removing liquidity and consider that you can always put an aggressive limit order I could bid a 318 there's gonna be tons of look liquidity in this book to 318 but at least that way I know I'm not paying $500 or in a better case when you're selling with a stop order you don't want to be involved in a flash crash and sell something in a cent believe me it's actually happened before yeah no it's an absolutely great point I think you're making there that so you know traders professional traders never use market orders for that very reason so a great concept there very important to understand that you can get a recive with your order type but you always want to make sure it's only to a certain point I just want to put Shawn on the spot here real quick before we wrap this up Shawn we were talking a little bit about saving traders money when it comes to the fees that they spend on a daily basis how many fields have you had today and how much fees have you paid okay today is a little bit of a different day but today 202 trades so that's Phil's and my fees are $63 so you're adding and removing a little bit like I mentioned so that's a very very good point depending on your style of trading though those can even be negative Neal I'll throw this back to you if you're adding removing liquidity maybe you even have one of those buyouts up but sometimes you can make money just by adding and removing liquidity at the same price I'm not sure do you have an example right now I do have an example I can give you a I've made 200 trades Shawn and my fees are $12 there we go on the day but that's because I'm getting paid to trade some stocks this is a stock a PT LA involved in the leveraged buyout it trades a very tight range because it's a cat feel at 18 now I can sit on the bet bid at a price that I think fundamentally it's not going to move away from and get paid to trade it all day long as long as I'm smart about where I had to remove liquidity you know what this does is it helps to a pay for some of those expensive trades where you're removing liquidity over and over again so usually I'm relatively neutral because I do a bit of both my fees end up very very low because I am getting paid to trade as often as possible and that's the key right there are 200 trades 12 bucks and fees so that's a big huge point that we wanted to make sure we get across lots of great information there guys when it comes to adding and removing liquidity hit the like button and the subscribe button take it away valaria hey Brennan and thank you for this great explanation please subscribe to this channel and catch us live every day at 9 a.m. Eastern Time [Music] you [Music]