If you are on the Tiered commission schedule, then it is important to have a proper understanding of exchange fees and add/remove liquidity fees. The concept of adding or removing liquidity is applicable to both stocks and stock/index options. Whether or not an order removes or adds liquidity is dependent on that order being marketable or non-marketable.
Marketable orders REMOVE liquidity.
Marketable orders are either market orders, OR buy/sell limit orders whose limit is at or above/below the current market.
- For a marketable buy limit order, the limit price is at or above the Ask.
- For a marketable sell limit order, the limit price is at or below the Bid.
Example:
XYZ’s stock current ASK (offer) size/price is 400 shrs at 46.00. You enter a buy limit order for 100 XYZ stock @ 46.01. This order will be considered marketable because an immediate execution will take place. If there is an exchange charge for removing liquidity, the customer will be charged that fee.
Non-Marketable orders ADD liquidity.
Non-marketable orders are buy/sell limit orders in which the limit price is below/above the current market.
- For a non-marketable buy limit order, the limit price is below the Ask.
- For a non-marketable sell limit order, the limit price is above the Bid.
Example:
XYZ’s stock current ASK (offer) size/price is 400 shrs at 46.00. You enter a buy limit order for 100 XYZ stock @ 45.99. This order will be considered non-marketable, because it will be posted to the market as the best bid, and instead of being immediately executed.
If and when someone else sends a marketable sell order that causes your buy limit order to be executed, you should receive a rebate (credit), if an add liquidity credit is available.
Please Note
- All accounts trading options will be subject to any options exchanges’ remove/add liquidity fees or credits.
- Per IBKR’s website, only negative numbers under the Remove/Add Liquidity schedules are rebates (credits).