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Rebate Trading is the act of buying or selling short a stock directly from an Electronic Communications Network (ECN) and receiving a rebate from the ECN for the transaction.  Rebate trading is an equity trading style that uses ECN rebates as a primary source of profit and revenue. Most ECNs charge commissions to customers who want to have their orders filled immediately at the best prices available, but the ECNs pay commissions to buyers or sellers who “add liquidity” by placing limit orders that create “market-making” in a security. Rebate traders seek to make money from these rebates and will usually maximize their returns by trading low priced, high volume stocks.
This enables them to trade more shares and contribute more liquidity with a set amount of capital, while limiting the risk that they will not be able to exit a position in the stock.

Rebate trading was pioneered at Datek Online and Domestic Securities.

Rebate trading is mainly used by day traders as the transaction can list for seconds.

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