ECN Fees explained

Electronic Communication Networks (ECNs) or Alternative Trading Systems (ATSs) are computerized systems that help match security sellers with buyers.

These networks and systems may charge a small fee per share for certain transactions (usually when removing liquidity from the market) in addition to any standard commissions charged by Questrade.

We’ll explore the following topics in more detail below:

• What exactly are ECNs and ATSs?
• How much are ECN/ATS fees?
• What does removing and adding liquidity mean?
• How are my trades and orders impacted by these fees? (with examples)
• Key takeaways and important tips

What are ECNs?

Electronic Communication Networks (ECNs) are automated, computerized trading systems that are designed to match buyers (bids) with sellers (asks) of a security (such as a Stock or ETF). ECNs are used by both retail and institutional investors alike, and brokers (such as Questrade) allow you to utilize ECNs for best price execution when you place a trade.

How are ATSs different from ECNs?

Alternative Trading Systems (ATSs) is an umbrella term that is also sometimes used for ECNs. The difference is that not all ATSs are completely automated and computerized. Examples of ATSs include: ECNs, Electronic trade matching, Crossing networks, and Dark Pools.

When you place a trade at Questrade, the Order Route (or ECN) is chosen for you automatically.

Read more about order routes and how to modify them in the article below.

Current ECN fees

“ECN fees” also refers to all ATS fees and is charged in the currency of the trade.

Canadian Securities trading at $1.00 or more:

Canadian Securities trading at $1.00 or below:

U.S. Securities

The good news is that ECN/ATS fees don’t necessarily apply to every trade.

In general, ECN fees are charged when placing buy or sell orders that are considered to be “removing liquidity” or, in other words, when placing orders that are likely to be executed immediately. Only certain ECNs are subject to additional fees when adding liquidity.

Note: Trades at market open (9:30am ET) and market close (4pm ET) may also be subject to ECN fees.

Let’s learn when they apply and how these fees can be avoided.

What is removing and adding liquidity?

First, what is liquidity?

Liquidity is a financial term that’s used to describe how easily you can convert a security to cash without substantially affecting its market price. This usually depends on how many shares are available at any given time for the purchase or sale of a specific security.

Stocks or ETFs with low liquidity and fewer shares trading (low volume) may have wider Bid-Ask spreads, and investors may not be able to buy or sell at their desired prices. Securities with high liquidity and a high volume of shares being traded will generally have tight Bid-Ask spreads that are only a few cents (or less) apart (depending on the price of the security).

As a result, ECNs and ATSs are always promoting higher liquidity to encourage an efficient market for all participants. When you place a trade to buy or sell shares that removes liquidity from the market, there is sometimes a small per share fee charged.

Removing vs. adding liquidity

An order is generally considered to be removing liquidity from the market if it fills immediately, or requires matching as an odd-lot order.

Market orders which fill (or execute) immediately are always considered to be removing liquidity since your order basically “jumps the queue” of the other limit orders currently sitting on the exchange’s order book.

Marketable limit orders (limit orders above the Bid for buys, or below the Ask for sells) are also considered to be removing liquidity as they’re executed immediately just like regular market orders.

What is an example of adding liquidity?

If you place a non-marketable limit order that requires your order to “sit in the queue” or on the exchange’s order books to be filled, it’s considered to be adding liquidity.

This would be a limit order where the limit price is lower than the Ask (when buying), or higher than the Bid (when selling).

Please note: Non-marketable limit orders executed at market open and close may be subject to ECN fees depending on the liquidity of the specific security.

Odd-lots and ECN fees

Odd-lot orders (any orders that are not 100 shares, or multiples of 100) are also usually considered to be removing liquidity since they require additional matching by ECNs or ATSs for buyers and sellers.

Any order of an even lot, also known as a “standard board lot” (i.e. 200 shares) that is not executed (or filled) immediately is considered to be adding liquidity since the order will sit on the exchange’s order book waiting for someone to agree to the price provided.

Note: For Canadian securities trading between $0.10 and $1, a standard board lot is multiples of 500 shares. (i.e. 1,000, 1,500, etc.)

For Canadian securities trading below $0.10, a standard board lot is multiples of 1,000 shares. (i.e. 2,000, 6,000, etc.)

For more information, please see the TSX’s Order Types and Functionality Guide.

Let’s look at some more examples

Suppose Sam, Raj and Erika all want to buy 460 shares of a hypothetical stock - XYZ.to. The current Ask is $17.51.

Sam

Sam places a market order to buy 460 shares. Since Sam’s order will fill immediately, they’re considered to be removing liquidity.

Sam will likely pay ECN/ATS fees of $1.61 CAD. [$0.0035 (Fee) * 460 (number of shares)] = $1.61

Raj

Raj places a marketable limit order to buy 460 shares at $17.54, three cents above the Ask.

Raj’s order will fill immediately as he’s using a marketable limit order, and Raj is considered to be removing liquidity. This is because Raj is offering to buy shares of XYZ.to for $17.54 while the market is offering them for less at $17.51.

Raj will likely pay ECN/ATS fees of $1.61 CAD. [$0.0035 (Fee) * 460 (number of shares)] = $1.61

Erika

Erika places a non-marketable limit order to buy 460 shares at $17.36, 15 cents below the Ask.

Because Erika’s order will be pending in the queue until the Ask price drops to $17.36, she’s considered to be adding liquidity, and will typically not pay ECN/ATS fees for the 400 even-lot portion of her order.

Because part of Erika’s order is an odd-lot (the 60 shares), she will still be charged ECN/ATS fees, but only on the odd-lot portion.

Erika will likely pay ECN/ATS fees of $0.21 ($0.0035 * 60).

Key takeaways and important tips

When placing a trade, the order confirmation page will always show the theoretical maximum amount you could be paying in ECN fees; however, the amount charged is often much lower than what is shown.

You can always find out exactly how much you paid in ECN/ATS fees by adding a custom data column on the Questrade Edge Web or Edge Desktop platforms.

Simply click the edit columns button on the top right of the “Executions” tab, and add the ECN fee field.

What else can be considered as removing liquidity?

• Buy and cover orders where the limit price is equal to or greater than the ask price
• Sell and short orders where the limit price is equal to or less than the bid price
• Executed stop orders
• Executed stop-limit orders where the limit order is immediately executable
• Any order with special restrictions, such as AON (all or none)
• Any order executed in the pre- or after-market
• Odd lot orders can trigger an ECN fee, regardless of the order type and/or order duration used
• Trades executed at market open or market close