Scratch for the Rebate high frequency trading strategy

Author: Zero, Created: 2015-06-07 07:52:45, Updated:

In the United States, the stock market trades all the time to increase the liquidity of the stock, and there is a reward mechanism for the shares traded in exchange for the quotes of the market makers, which is also commonly known as Rebate.

When market makers have this Rebate reward mechanism, they can create a large number of transactions in a short period of time to earn this reward. As of March 2009, the NYSE's reward standard for market makers is $0.001 per transaction.

When a stock has a very narrow bid/ask spread, the market maker can use this Scratch for the Rebate strategy. Suppose now a market maker bids for a stock at 1,000 shares. $1.00 x $1.01 1,000 shares, and when his limit bid is eaten, he can immediately change his listing in the market to 1,000 shares. $1.01 x $1.02 1,000 shares, and then wait for his buy to be done.

This is one of the most common high-frequency trading strategies used by market makers.


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