commissions

[raf_bcn]

Hi
I am trying to pay more attention in the commissions.
I have place a trade with Spy options, 5 lots , 4 options each lot, total of 20 options.
It was a limit order and smart routing order. It traded in the PSE.
Total commission 25.59

The commission from my broker, IB, is 0,70 per otion = 14.00
Where the rest 11.59 came from ?
I have asked to them. Apparently I have take liquidity, so 10.00 are because of that.

What is the way to not take liquidity but add ? I thought limit orders add liquidity.

thanks.

 

[Robert Morse]

Of course you can add. For each trade, there are a buyer and a seller that reach agreement on a price. You add buy being the one at the price before the other party. You take the chance of not doing a trade at all by placing limit orders that are not marketable at that time.

At Lightspeed, we have SMART routes too. I do not claim them to be smart. They do avoid maker/taker fees for equity options. As an example, on Sterling Trader Pro, using a SMART route, that same trade would cost you:

20*$0.60 = $12.00. Then you add the reg fees/ The buy side averages $0.04 and the sell side closier to $0.05. Our commision rate includes the OCC fee of $0.05/options. So now add around $0.04*20=$0.80 for a total of $12.80. If you used a DMA route to PSE, swtich would be crazy and they are expensive, we would add that fee too. Some exchange do not charge for taking liquidity as long as the trade does not have to be re-routed.

Lightspeed Trader, Sterling Trader, Realtick and Silexx are set up with access to both SMART and DMA. When LVX is offered with Wedbish accounts, it will be a SMART route only offering.

Bob

 

[FSU]

Welcome to the crazy world of exchange fees. Robert gave you a pretty good summary, but to add a bit. In SPY options the fees range to a surcharge of .50 to a rebate of .42, depending on the exchange and whether you are adding or taking liquidity. If you put a limit order in to buy below the current offer or a sell order above the current offer, you should generally get an added liquidity rebate, depending on where the order was filled.

The uncertainty occurs when you are trying to hit a bid or take an offer. Depending where you are filled is the key. Even with smart routing these fees may not be avoided. Say the displayed market on a SPY option is .70-.71. If the .71 offer is on say the C2 exchange and the other exchanges are quoting .70-.73. If you want to pay .71 you most likely will have to go to the C2 and pay their .49 taking liquidity fee. But say the market is .70-.73 on most of the exchanges and you hit the bid or take the offer. You most likely will be routed (using a smart route) to an exchange that doesn't charge a fee.

So these fees can be difficult to avoid if you want to take and offer or hit a bid. Using a smart route will lessen the chances, depending on where you are filled.

 

[JSOP]

What is the way to not take liquidity but add ? I thought limit orders add liquidity.

thanks.

It's not just any limit order that will add liquidity according to IB. The same problem occurred to me too and I asked IB about this. This is how IB explained it to me: To have the limit order qualify as liquidity-adding, it has to be a limit order where it's not immediately marketable in that as soon as you post the order, it cannot be hit right away otherwise it still counts as a market order and taking liquidity. So one way to do that is to make sure your limit order price is not in between the bid/ask. In other words, the limit price has to be at least the same as the bid or lower if it's a buy limit order and the same as the ask or higher if it's a sell limit order. The order has to have waited to be hit.

The problem with option orders is that the option exchanges are so fragmented that the liquidity is horrible so if you absolutely insist on avoiding the exchange fees, you can have limit orders that are going to take forever to be filled it's ridiculous.

 

[Robert Morse]

To have the limit order qualify as liquidity-adding, it has to be a limit order where it's not immediately marketable in that as soon as you post the order, it cannot be hit right away otherwise it still counts as a market order and taking liquidity

Sorry JSOP, but this is not accurate. E.G. Market is 1.01 x1.03. If at the time I bid 1.02, I get there (the exchange order book) before another customer or if a MM reacts to my order, and I get there in time order first, I qualify for "adding." With option spreads at IB, and as far as I know only IB, they retain the right to hold your order in their system until they deem marketable. Then the fees are based on when your order gets to the complex order book on the exchange not when your order was entered at your broker. At Lightspeed we do not hold option orders. They post to an exchange.

Bob

 

[JSOP]

Sorry JSOP, but this is not accurate. E.G. Market is 1.01 x1.03. If at the time I bid 1.02, I get there (the exchange order book) before another customer or if a MM reacts to my order, and I get there in time order first, I qualify for "adding." With option spreads at IB, and as far as I know only IB, they retain the right to hold your order in their system until they deem marketable. Then the fees are based on when your order gets to the complex order book on the exchange not when your order was entered at your broker. At Lightspeed we do not hold option orders. They post to an exchange.

Bob

That's what I thought. I thought a limit order should always be liquidity-adding until when I got charged exchange fees when I was supposed to be receiving rebates for limit orders and that was the crap that IB told me. They told me that if my order is "immediately marketable", even though it is a limit order, it still wouldn't qualify as liquidity-adding. I KNEW IB was pulling something there. Can they do that? Are they allowed to actually hold your order instead of sending them directly to the exchanges to be executed? I thought as a broker, it is their responsibility to route customers' orders immediately to exchanges to be traded otherwise they are not really doing their job. It's like the real estate agents that you signed up to sell your house aren't actively advertising your house.

What if I send my orders directly to an exchange instead of through their SMART routing? Can they still hold my order in their system instead of sending them to the exchange?

Thanks for your insight, Robert. They are really valuable as usual.

 

[Robert Morse]

I thought a limit order should always be liquidity-adding

I want to be clear, as limit orders are not always adding. In time order, you order at your price needs to arrive at the exchange order book before the counterparty to your trade. In my example, your 1.02 bid must be first before the 1.02 offer. If you bid 1.03 as a limit order, you are clearly taking. And, you have to be aware of all 15 option exchanges. If you bid 1.02 on the AMEX and there is an 1.02 offer on ARCA, your order will be linked to ARCA and you will be subject to both a linking fee and the ARCA fee.

Bob

 

[JSOP]

I want to be clear, as limit orders are not always adding. In time order, you order at your price needs to arrive at the exchange order book before the counterparty to your trade. In my example, your 1.02 bid must be first before the 1.02 offer. If you bid 1.03 as a limit order, you are clearly taking. And, you have to be aware of all 15 option exchanges. If you bid 1.02 on the AMEX and there is an 1.02 offer on ARCA, your order will be linked to ARCA and you will be subject to both a linking fee and the ARCA fee.

Bob

The timing issue, yeah that I know. But seeing how slow-moving the options markets are, there is no way that my limit order would've arrived exactly when an counter-order, if you will, has arrived at the same time just so took my limit order out especially if it's right at or outside of the NBBO but so many times that I posted limit orders and got hit massive commission fees for liquidity-taking and IB's argument is always that my limit orders were "immediately marketable" when the option quotes have been sitting there un-moving for like hours. Is it possible that as soon as I sent in a limit order and all of sudden there was a taker out of nowhere? And even with my scenario, my limit order should've still been liquidity-adding. As long as my limit order was hit 0.00001 seconds later than when the order was posted, my limit order should've been liquidity-adding. I added liquidity thus another trader was able to hit it albeit 0.00001 seconds later.

 

[Robert Morse]

The timing issue, yeah that I know. But seeing how slow-moving the options markets are, there is no way that my limit order would've arrived exactly when an counter-order, if you will, has arrived at the same time just so took my limit order out especially if it's right at or outside of the NBBO but so many times that I posted limit orders and got hit massive commission fees for liquidity-taking and IB's argument is always that my limit orders were "immediately marketable" when the option quotes have been sitting there un-moving for like hours. Is it possible that as soon as I sent in a limit order and all of sudden there was a taker out of nowhere? And even with my scenario, my limit order should've still been liquidity-adding. As long as my limit order was hit 0.00001 seconds later than when the order was posted, my limit order should've been liquidity-adding. I added liquidity thus another trader was able to hit it albeit 0.00001 seconds later.

I agree.

 

[raf_bcn]

Hi

I want to say that the order was a sell order lower than the ask and waited at least 10 minutes to be hit.

Let me understand this. If the bid ask is e.g. .10 - .20 and I place a bid to buy at .15, I am adding liquidity. Right ?
But if the broker retains that order and only sends to the market when the bid ask is .05 .15 and the order is hit, I am taking liquidity.

The difficulty is to understand why IB would retain that order , what's the reason ? They have made their client pay a 80% more.

. If you bid 1.02 on the AMEX and there is an 1.02 offer on ARCA, your order will be linked to ARCA and you will be subject to both a linking fee and the ARCA fee.

This is also new for me . If I send a direct order to one specific market and there is a better price in another exchange, the order will be hit in that other exchange ?
And plesae, what are linking fees.

thanks.