The Prop Trader's Chronicles: Short-Term Proprietary Trading Strategies for Both Bull and Bear Markets

DIRECT EDGE DUAL EXCHANGES—EDGA (J) AND EDGX (K)

Originally founded in 1998 as the “Attain ECN” by All-Tech, a firm headed by SOES Bandit Harvey Houtkin, the dual exchange platform was rebranded as Direct Edge when it was acquired by Knight Capital Group. In March of 2010, Direct Edge received approval from the Securities Exchange Commission (SEC) to convert from an ECN into a licensed electronic stock exchange. In short, Direct Edge is now legally an exchange competing for your business with the household names like the NYSE and NASDAQ. Direct Edge, however, runs dual platforms commonly known as EDGX (pronounced “Edge X”) and EDGA (pronounced “Edge A”).

Direct Edge has been granted exchange status in the legal sense, but like the NASDAQ and many of the exchanges around the world today, there is no physical trading floor. Both Direct Edge systems are entirely electronic and its servers have been physically located at the Equinix NY4 data center in Secaucus, New Jersey, since late 2010.

The EDGX platform is essentially a direct competitor to Island and Arca. It charges a fee for removing liquidity and pays a rebate for adding liquidity to it. The difference, of course, is that EDGX typically offers better pricing to both sides (a smaller charge for removal and a larger rebate for adding) to aggressively compete for market share from the big mainstay ECN systems.

EDGA, on the other hand, was originally launched as a free ECN to attract volume and later adopted the inverse maker-taker ...