You might have heard of ECN, Electronic Communications Network. ECN offers brokers direct access to the stock market. If a direct access broker such as Cobra Trading is used, the order you placed goes directly to the market and gets executed as fast as possible. Usually, that means that the transaction is complete within milliseconds as opposed to seconds. ARCA is an example of an ECN route.
Every day trader knows the high price of being stuck in a trade for an extra second. Even the shortest pause can be disastrous, and a poorly timed execution can result in a huge loss. Missing out on a great opportunity due to a mistake may sting, but losing money because of an execution delay that’s out of your control is simply infuriating.
But where does the delay come from?
With big box brokers, every order gets paused and analyzed. A market maker or internal system (basically, a middle man) checks your order to see how it should be dealt with. If the spread between the bid and the ask allows the broker to make money off a trade, it may be completed internally. But if the current bid-ask spread denies your broker an opportunity to turn a profit, it gets placed into a batch of other outgoing orders that get traded on the market as usual.
Alternatively, direct access routes give you complete control over your trading process. In turn, day traders who can execute quickly and reliably may gain an edge.
It is important to note that direct routes offer rebates that can potentially lower your commission. For example, there are specific routes that you want to take when adding or taking away liquidity. Stay tuned for future posts on this topic, as well as other educational materials for day traders.
And if you’re not sure what routes are most suitable in your situation, make sure to reach out to our expert customer service. Our live chat feature allows you to get a quick answer and see what’s the best course of action in your particular case.