TradeStation tied marketable-order payments to the spread; the old rate and new formula cross at 2.17 cents

TradeStation Securities changed the disclosed economics of payment for marketable stock orders between the fourth quarter of 2024 and the first quarter of 2025. The earlier Rule 606 report described a fixed payment of $0.0026 per share from non-exchange venues for marketable orders priced above $1. The next quarter replaced that rate with a payment equal to 12% of the quoted national best bid-and-offer spread.[1][2]

The two formulas are equal when the spread is approximately 2.1667 cents per share. Below that point, 12% of the spread produces a smaller disclosed payment than the old fixed rate; above it, the percentage formula produces a larger one. The change therefore linked TradeStation's potential routing compensation to a core measure of market width rather than a constant amount per share.[1][2]

The break-even calculation

The calculation is straightforward. Dividing the old $0.0026 payment by 0.12 gives a break-even spread of $0.0216667 per share. At a one-cent spread, the new formula yields $0.0012 per share—53.8% below the old rate. At a five-cent spread, it yields $0.0060 per share—130.8% above the old rate. For a 100-share order, those examples translate into 12 cents and 60 cents respectively, compared with 26 cents under the prior fixed formula.[1][2]

These are formula illustrations, not a reconstruction of TradeStation's actual receipts. Real payments depend on which venue received an order, whether it executed, the applicable spread, order characteristics and the commercial agreement in force. The Rule 606 disclosures describe routing inducements and arrangements; they do not provide every order-level payment needed to calculate realised revenue.[1][2]

Why spread-linked compensation changes the incentive shape

A fixed per-share payment is invariant to the width of the quoted market. A percentage-of-spread payment rises as the spread widens. That does not establish that TradeStation routed orders toward wider spreads or sacrificed execution quality. It does mean the disclosed economic value of a marketable order to the broker can be larger when the quoted spread is larger, all else being equal.[2]

The spread is also part of the customer's potential execution cost. Marketable buy orders ordinarily cross toward the offer and marketable sell orders toward the bid, although price improvement can narrow the realised cost. A compensation formula tied to the quoted spread therefore creates an economic relationship between a market-quality variable and the broker's payment. That relationship deserves scrutiny under best-execution governance even where every venue pays the same percentage.[2][3]

TradeStation's public order-routing page states that it is obligated to obtain best execution and considers execution price, price improvement, speed, accuracy, execution likelihood, systems and service. It says routing decisions are not based on the size of a rebate because all market makers receiving routed orders must agree to the same per-share or per-contract rate. Under the new disclosure, the relevant equality appears to be the same rate or percentage across non-exchange venues, reducing a direct incentive to choose one market maker over another solely for a higher quoted payment.[3][2]

Equal venue terms do not remove every conflict

A uniform payment schedule can neutralise differences among participating wholesalers, but it does not eliminate the broader comparison between compensated off-exchange routing and routes that may charge fees, pay different rebates or provide different execution quality. Nor does it answer how TradeStation weighs a spread-linked payment against price improvement and fill quality in its routing logic.[3][2]

Rule 606 is designed to make those relationships visible at an aggregate level. It requires broker-dealers to disclose significant routing venues and material aspects of payment arrangements for non-directed customer orders. The reports do not themselves determine whether a broker achieved best execution. That assessment requires execution-quality data, order-level context and a review of the broker's routing process.[3]

Marketable and non-marketable orders were treated differently

The Q4 2024 report disclosed $0.0026 per share for marketable stock orders and $0.0030 per share for non-marketable orders priced above $1. The Q1 2025 report changed the marketable-order component to 12% of the spread while retaining a $0.0030 per-share figure for non-marketable orders and separately disclosing $0.0010 for certain outside-core-session handling. That specificity suggests the change was targeted rather than a wholesale replacement of every equity-routing payment.[1][2]

Marketable and non-marketable orders provide different economics to a venue. A marketable order demands liquidity immediately; a non-marketable limit order may supply liquidity and execute later. The report's differentiated schedules reflect those distinct roles. The investigative comparison therefore should not mix the 12% marketable formula with the unchanged non-marketable rate.[2]

The formula can move materially across ordinary spreads

The break-even point is not far outside common quoted increments. At a two-cent spread, the formula yields $0.0024 per share, just below the prior rate. At a three-cent spread, it yields $0.0036, about 38.5% above it. At ten cents, it would yield $0.012, more than four times the old payment. Those examples show the linear sensitivity of the broker's disclosed compensation to spread width, but they do not indicate how often TradeStation orders encountered each spread.[1][2]

A meaningful empirical test would match TradeStation's routing and execution data with NBBO spreads, price improvement and effective spreads by security and order size before and after the change. Without those data, it is impossible to say whether customer execution improved, deteriorated or remained unchanged. The disclosure establishes the contract formula, not the execution outcome.[3][2]

What the disclosures do and do not establish

The Q1 2025 disclosure defines the spread as the difference between the national best bid and offer at the time of execution. That supplies the reference clock for the formula. Reproducing actual receipts would additionally require execution-level spreads, quantities and venue payment records. The threshold calculated here compares published rates; it is not an estimate of total revenue.[1][2]

TradeStation’s published routing explanation says it considers execution price, price improvement, speed, accuracy, execution likelihood and service. It also says it does not base routing decisions on rebate size because market makers must agree to the same rate. No evidence reviewed here establishes a breach of best execution or customer harm. The formula can be analysed without assuming that the payment determined routing.[3]

Quoted spread and effective spread are not the same

The disclosed 12% formula references the quoted NBBO spread, while execution quality is often assessed using effective spread—the distance between the execution price and the midpoint, doubled to express round-trip cost. Price improvement can make effective spread narrower than the quote. A broker could therefore receive compensation calculated from a wide quote while still obtaining an improved execution, or receive little compensation on a narrow quote with poor speed or fill likelihood.[2][3]

That is why the formula cannot be judged from spread width alone. A rigorous review would compare payment, effective spread, price improvement, fill rate, speed and adverse selection for similar orders. It would also separate large and small orders, liquid and illiquid securities, and core from extended hours.[3]

The percentage formula transfers variability

Under the old schedule, TradeStation could estimate payment from executed share count with relative certainty. Under the new schedule, compensation varies with market conditions. Volatile or less liquid periods can produce wider spreads and higher formula payments, while highly liquid periods produce less. The market maker correspondingly shares a percentage of the spread rather than a fixed amount.[1][2]

That design may align compensation with the economics available to a wholesaler, but it can also make broker revenue more sensitive to volatility and security mix. The Rule 606 reports do not provide enough realised-payment data to quantify that sensitivity across TradeStation's order flow.[2]

A 100-share example makes the customer-scale comparison tangible

At a one-cent quote, the formula produces 12 cents for 100 executed shares versus 26 cents under the old rate. At a five-cent quote, it produces 60 cents. Those amounts may be small relative to the order value, but aggregated across millions of shares they can become material to broker revenue. The calculation must still be kept separate from any customer's execution loss or saving.[1][2]

The broker's payment and the customer's spread cost are related but not identical. The market maker can provide price improvement, absorb risk and incur hedging costs. A higher broker payment does not prove the customer paid an equal extra amount, just as a lower payment does not prove better execution.[3]

What a before-and-after study should control

The strongest test would use securities that traded under both schedules and compare matched orders around the change. It should control for price, spread, volatility, order size, time of day and venue. Outcome measures should include effective and realised spread, price improvement, execution speed, fill probability and short-term price movement after execution.[3]

A study should also examine routing concentration. If venue shares changed materially after the formula change, the reasons should be tested against execution-quality metrics. No such causal analysis can be produced from the public disclosure alone, so the article stops at the verified economics and identifies the data required to go further.[1][2]

The change sits inside a wider commission-free brokerage model

Retail brokers can earn from cash balances, margin interest, securities lending, subscriptions and order routing even when an equity trade carries no explicit commission. Rule 606 and Rule 607 disclosures expose one part of that revenue stack. A customer comparing brokers should therefore examine execution outcomes and all account economics rather than treat a zero commission as a zero-cost service.[3]

The spread-linked formula is important because it makes one revenue component responsive to the market environment in which the customer trades. That does not make the model improper. It does make disclosure and independent execution measurement essential, especially when a broker's compensation can rise at the same time quoted liquidity becomes more expensive.[2][3]

The comparison is historical: the fixed rate appears in the Q4 2024 report and the percentage formula in the Q1 2025 report. It does not establish that the formula remains unchanged in November 2026, or that it applied to every order throughout January 2025. The report versions bound the comparison; an effective-date notice would be needed to date the change more precisely.[1][2]

The formula also creates a clear audit trail. For any sampled marketable execution, a reviewer can retrieve the relevant quoted spread, apply 12% and compare the result with venue statements and broker revenue records. That makes the disclosure empirically testable rather than merely qualitative.[2]

The central finding

TradeStation's disclosure changed a marketable order from a fixed-value payment to one whose value scales with the quoted spread. The old and new formulas cross at 2.17 cents. That is a precise, testable change in routing economics—not a conclusion about misconduct. It gives customers and regulators a concrete threshold around which to examine actual execution data.[1][2]

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