Trading On Hard Mode

How Midpoint Stability Is Achieved at IEX, Especially in the Toughest Trades

As we discussed in our most recent blog, IEX continues to achieve superior midpoint stability through the Speed Bump and Signal, helping avoid “the gray pool problem” which is felt most acutely on Maker-Taker exchanges. However, midpoint stability can vary significantly between different symbols.

In October’s Chart of the Month, we expand on our earlier midpoint stability analysis, looking at how these figures change based on share price. Lower-priced stocks tend to be inherently more stable due to the 1-cent minimum tick size mandated by Reg NMS. For example, a 1-cent move in a $5 stock represents a 20 basis point (bp) shift in the stock, whereas the same 1-cent move in a $200 stock equates to just a 0.5 bp move. This means maintaining a stable midpoint in a $5 stock is relatively “easier” because the stock needs to stay within a 20 bp range after the trade, as opposed to just a 0.5 bp range for a $200 stock.  Moreover, these stocks tend to have thicker queues, making it harder to actually create price changes.

Looking at midpoint stability by exchange type and share price, we see IEX leads other exchanges across all prices, with an even more significant lead in higher-priced, “more difficult stocks." Interestingly, IEX  trades more of its midpoint volume in higher price stocks compared to most other exchanges. On IEX, only 20% of midpoint volume trades in names under $10, vs more than 30% on all other Maker-Taker exchanges. Plus, IEX trades 18% of its midpoint volume in names over $100, almost twice the average of other Maker-Taker exchanges.¹

For this reason, we would argue that IEX’s advantage in midpoint stability vs other exchanges is even larger and more valuable than the overall numbers would suggest.

To learn more about how the IEX D-Peg order type, Signal or Speedbump can help your trading, reach out to your IEX BD rep or sales@iextrading.com