What it means
In the United States, shares can be traded on many venues at once, not just on the oldest exchanges. EDGX is one of these, and it matches buy and sell orders using a fully electronic system.
It began as part of an earlier trading company and is now run by Cboe, which operates several equities exchanges. Competition between exchanges matters because it affects the price investors pay to trade.
Exchanges compete on speed, order types, reliability and fees, and they often use a pricing model in which one side of a trade receives a small rebate while the other pays a fee. Brokers route client orders to the venue that offers the best combination of price, speed and cost.
EDGX is also an example of how market structure has changed. Trading that once happened on a single trading floor now takes place across competing electronic venues, linked by rules that require brokers to seek the best available price.
Prices on one venue are shown across the market, so a buyer can be matched with a seller on another exchange. For ordinary investors and businesses, the effects are indirect.
Corporate treasurers who invest cash in listed securities, or companies that run employee share plans, rely on brokers who handle the routing. The investor sees only the final price and any commission, but the quality of routing can affect the price received.
Exchanges of this type are regulated by securities regulators and must follow rules on fair access, record keeping and reporting. They publish their fee schedules and trading rules so that members can see how orders are handled.
Rules and fees change from time to time, so current details should be checked directly with the exchange or broker. Names like EDGX often confuse newcomers because they look like codes.
The simple message is that it is a trading venue, one of many, where electronic orders meet.
In practice
Real-world examples.
Example
A broker receives a client order to buy 1,000 shares of a large company. Its routing system sends part of the order to EDGX because the exchange is showing a competitive price at that moment. The remainder goes to other venues so that the full order is filled at a fair average price.
Example
A market maker places standing orders on several exchanges, including EDGX, to buy and sell the same stock. It earns a small amount on each trade and adjusts its prices as the market moves. Its profit depends on volume, not on the direction of the market.
Example
A university endowment compares the trading costs reported by different brokers. The report shows which venues, including EDGX, were used and how much each trade cost in fees and price. The committee uses the report to question the brokers about their routing choices.
Case study
Seen in the real world.
This is a fictional story. Copperline Wealth, an invented investment firm, wanted to cut its trading costs on large share orders. The head trader reviewed where the firm's brokers were sending orders and found that most went to one venue.
She asked the brokers to explain their routing and to test other venues, including exchanges like EDGX, for orders where the price and fees were attractive. After a three-month trial, the firm measured the price it actually received compared with the market price at the time of the order.
The analysis showed an average improvement of about 0.5 cents per share, which added up to $50,000 across 10 million shares traded. The head trader kept the new routing and continued to monitor the results each quarter. The firm and numbers in this account are illustrative. The head trader stressed that results will differ for other firms and other periods, so the test needs repeating from time to time. She also asked the brokers to supply quarterly reports of execution quality so that any drift would be spotted early.
Watch out
Common mistakes.
- Assuming all shares trade on one exchange. In the United States, trading is spread across many competing venues.
- Believing the exchange chooses the price. Prices result from the orders that buyers and sellers submit.
- Ignoring routing and fees. These affect the price investors actually receive or pay.
Questions
People also ask.
Who runs EDGX?
It is operated by Cboe Global Markets, which runs several US equities exchanges.
Can an individual investor trade directly on EDGX?
Not usually. Trading goes through brokers, who are members of the exchange or who route orders to members. This structure allows the exchange to supervise its members directly. Retail investors therefore see the exchange's work only through the quality of their broker's execution.
Why do exchanges compete on fees?
Brokers choose where to send orders, so a lower cost or a rebate can attract more trading. In practice, brokers weigh these fees against the chance of getting a trade done quickly.
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