Trading Fees and Efficiency in Limit Order Markets

57 Pages Posted: 12 May 2011 Last revised: 15 Mar 2013

See all articles by Jean-Edouard Colliard

Jean-Edouard Colliard

HEC Paris - Finance Department

Thierry Foucault

HEC Paris - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: Mars 1, 2012


Competition among trading platforms has considerably reduced trading fees in stock markets. We show that this evolution is not necessarily beneficial to investors. Obviously it increases gains from trade when a trade happens. Less obviously, it can induce investors to post limit orders with a smaller execution probability. When this happens, gains from trade are realized less frequently and investors can be worse off. Our model has testable implications for the effects of trading fees and their breakdown between liquidity suppliers and liquidity demanders on limit order fill rates and bid-ask spreads. It also provides guidance to interpret the effects of inter-market competition on liquidity.

Keywords: Limit order markets, trading fees, make/take fees, inter-market competition, liquidity.

JEL Classification: G20, G18, G00, L10

Suggested Citation

Colliard, Jean-Edouard and Foucault, Thierry, Trading Fees and Efficiency in Limit Order Markets (Mars 1, 2012). Available at SSRN: or

Jean-Edouard Colliard

HEC Paris - Finance Department ( email )


Thierry Foucault (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
(33)139679569 (Phone)
(33)139677085 (Fax)


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