ECN Fees explained

Electronic Communication Networks (ECNs) 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).

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

• What exactly are ECNs?
• How much are ECN fees?
• What does removing and adding liquidity mean?
• Key takeaways and important tips

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. 

U.S. Securities

For US non-OTC securities, no ECN fees apply to orders except in cases where the order is "direct routed.” Direct routed orders means that the route is chosen in the trading platform by the user, rather than allowing the order to be routed automatically by Questrade’s order routing system. US OTC securities orders incur the ECN fee shown below in all cases, whether automatically routed or not.

The good news is that ECN fees apply to only a small number of trades. To avoid most ECN fees, allow Questrade to automatically route your order.

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.

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 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.

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).

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 lower than what is shown.

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

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

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.