Makers, Takers & Order Types Revisited

You already know the difference between resting and crossing — makers add liquidity, takers remove it. This lesson follows the money: exchanges run a business on that distinction, paying makers and charging takers, and that fee structure quietly reshapes how every order is routed and priced. Then we add the microstructure order types the retail world hides from you (post-only, IOC, FOK, iceberg) and the most underrated number in all of markets — the tick size, the smallest price step, which silently governs spreads, queues, and strategies.

The maker–taker fee model

Analogy. Think of a nightclub that pays beautiful, lively people to show up early (the makers) because a full-looking room attracts paying customers later (the takers), who buy the expensive drinks. The club’s profit is the cover charge and drink markup (taker fees) minus what it spent on the early crowd (maker rebates). An exchange runs the identical playbook with liquidity instead of vibes.

Definition. Under the maker–taker pricing model, an exchange:

• pays a rebate to the maker whose resting order gets filled (it provided liquidity), and
• charges a fee to the taker whose marketable order removed that liquidity.

The exchange keeps the difference. Typical US equity numbers are tiny per share — a taker fee around $0.0030 and a maker rebate around $0.0020 per share — but multiplied across billions of shares they’re enormous, and they dominate the economics of high-frequency makers. Some venues run the inverted (taker-maker) model: they pay takers and charge makers, to attract aggressive flow. Either way, the fee schedule is a force that bends behavior.

Worked example — the fee can flip your P&L

You’re a maker. You post a limit buy that fills 100,000 shares, earning a $0.0020/share rebate, and later sell the position with a resting limit, earning the rebate again.

• Rebate per leg: 100,000 × $0.0020 = $200. Two legs: $400 in rebates.
• Suppose the round trip is otherwise break-even on price. You walk away +$400 purely from rebates.

Now do the same trade as a taker (two marketable orders), paying $0.0030/share each leg:

• Fee per leg: 100,000 × $0.0030 = $300. Two legs: $600 in fees.
• Same price-neutral trade now costs you −$600.

The price action was identical; the fee model swung your result by $1,000. For high-volume traders, being a maker vs a taker is itself a strategy — sometimes worth more than the price edge. This is why some algorithms will sit patiently as makers to earn rebates rather than cross the spread.

How fees warp routing: rebate arbitrage and PFOF

The fee model has fingerprints all over how orders move:

• Rebate-seeking routing. Brokers and algos route resting orders to whichever venue pays the fattest maker rebate, and route marketable orders to wherever the taker fee is lowest. This is legal but creates a tension: the venue that’s best for the broker’s fees isn’t always the venue with the best price for the client — a conflict regulators watch closely (in the US, “best execution” rules exist precisely for this).
• Payment for order flow (PFOF). Recall from the last course: zero-commission brokers sell their retail order flow to wholesalers/market makers, who pay for it because retail flow is uninformed — it’s the profitable, low-adverse-selection flow every maker wants. The maker earns the spread (and any rebate) filling it; the broker gets paid; you get “free” trading and a fill that’s usually at or slightly better than the public quote. The cost is hidden in the price and in the conflict of interest.

The thread connecting both: liquidity has a price, and someone is always paying or being paid for it. Your “free” trade is free because your flow is valuable.

Order types through a microstructure lens

Retail apps show you market / limit / stop. The professional book has a richer toolbox, and each type is a precise statement about the maker–taker line.

Definition.

• Post-only — “reject me if I would cross.” Guarantees you stay a maker (and earn the rebate); if your limit price would take liquidity, the order is rejected or repriced instead of crossing. The order type of rebate-hunters.
• IOC (Immediate-Or-Cancel) — “fill whatever you can right now, cancel the rest.” A taker order that won’t rest; useful for sweeping available liquidity without leaving a footprint in the book.
• FOK (Fill-Or-Kill) — “fill the entire order immediately or cancel all of it.” All-or-nothing immediacy; no partial fills, no resting.
• Hidden order — rests in the book but isn’t displayed; it trades when reached but gives up time priority to displayed orders at the same price (you pay for invisibility with a worse queue position).
• Iceberg (reserve) order — displays only a small “tip” of a large order, replenishing the visible slice as it fills, so the market can’t see the true size. Hides size without going fully dark.

Analogy. Post-only is “I’ll only sell from my stall, never buy from yours.” IOC is “grab what’s on the shelf, don’t special-order anything.” FOK is “all twelve or I walk.” Hidden and iceberg orders are a poker player choosing how many cards to show — invisibility buys you protection from front-runners but costs you priority.

Tick size: the most underrated number in markets

Analogy. Imagine a sport where the smallest unit of distance you could move was one metre — no centimetres allowed. Strategy would warp around that coarseness: you’d never bother with subtle positioning, because you can’t move half a metre. The tick size does this to prices. It’s the granularity of the entire price axis, and everything that happens on that axis inherits its coarseness.

Definition. The tick size is the minimum price increment an order can be priced at — $0.01 for most US stocks above $1, but it varies by venue, price, and asset (futures and crypto have their own ticks; some venues run sub-penny ticks for cheap stocks). It quietly governs three things:

1. The minimum spread. The spread can’t be tighter than one tick. If a stock “wants” a half-cent spread but the tick is a penny, it’s stuck at a penny — a tick that’s too large forces an artificially wide spread and a fat maker profit.
2. Queue dynamics. When the tick is large relative to the asset’s natural spread, the spread pins to one tick and makers can’t compete on price — so they compete on time priority instead, racing to be first in the queue at that single price. A large tick turns price competition into a speed race for queue position.
3. Strategy and crowding. A small tick lets makers undercut each other by tiny amounts (price competition, tighter spreads, but thinner depth at each level — flickery books). A large tick produces fewer price levels, deeper queues, and fierce time-priority races. Regulators tune ticks deliberately (e.g. the US “Tick Size Pilot”) to study this trade-off.

Worked example — a tick too large

A $30 stock would, left alone, quote a spread of about half a cent. But the tick is $0.01. The tightest possible quote is therefore bid $30.00 / ask $30.01 — a full-penny spread, double what the stock “wants.” Makers earn that fat penny, and since they can’t undercut to $30.005, they instead pile into the $30.00 bid and $30.01 ask and race for queue position. The result: a wide-ish pinned spread, deep queues, and a microsecond arms race — all caused by a tick that’s too coarse for the stock’s natural spread.

Putting it together

The maker–taker line isn’t just mechanics — it’s money. Exchanges pay makers a rebate and charge takers a fee, and that schedule warps order routing, fuels rebate arbitrage, and underwrites payment for order flow (retail flow is prized precisely because it’s uninformed). The professional order-type menu — post-only, IOC, FOK, hidden, iceberg — is a set of precise statements about whether you provide or consume liquidity and how much you reveal. And underneath it all sits the tick size, the price grid’s resolution: too coarse and the spread pins wide while makers race for queue position; too fine and spreads tighten but depth thins and books flicker. Liquidity always has a price, and someone is always paying or being paid for it.

Key Takeaways