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I have one question regarding the liquidity rebate that liquidity providers receive. I've read on investopedia that it refers to the traders/investors who place limit orders since they then "provide" liquidity in terms of liquidity "makers".

However, in other papers I am reading that the liquidity rebate is received by the actual liquidity provider, meaning the market maker who profits from the bid-ask spread and not the investor.

Who actually receives the liquidity rebate then?

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  • $\begingroup$ This depends on your relationship with your broker. You won't see any rebates if you are with a retail broker and pay a flat fee per trade. If you are with a prime broker, it depends on how you structured your trading agreement with them when you were onboarded. There are hybrids, like IB, where if you select a particular pricing structure for your account, you will get the rebate with every trade where you provide liquidity. $\endgroup$
    – amdopt
    Aug 8, 2022 at 14:43
  • $\begingroup$ ah okay, so when I as an individual buy shares, then the respective broker receives the rebate? And when for example a hedge fund places huge amounts of limit orders, then they might get rebates for providing liquidity. Is that correct? $\endgroup$
    – itachi23
    Aug 8, 2022 at 14:57
  • $\begingroup$ Generally, yes, though it's not really that black and white. $\endgroup$
    – amdopt
    Aug 8, 2022 at 15:14
  • $\begingroup$ okay but thanks for your explanation! $\endgroup$
    – itachi23
    Aug 8, 2022 at 15:15

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