What Is ‘Liquidity Rebate’ and How Does It Incentivize HFT Market-Making?

A liquidity rebate is a payment or fee reduction given by an exchange to a trader (the 'maker') who places a limit order that adds liquidity to the order book. HFT firms are heavily incentivized by these rebates because their high volume of limit orders generates significant rebate income.

This income offsets their low-margin trading costs and encourages them to continuously provide tight quotes, which in turn reduces the bid-ask spread and slippage for other traders.