Does anyone have a solution for avoiding or decreasing modification fees with IB?
- Thread starter Gammahedge1
- Start date
I don't understand this.
The fine print at the bottom of the page clearly states that combination orders do not attract cancellation or modification fees. A butterfly is a combination order (I know you do not leg in or out).
If you are being charged these fees, then IB must clarify.
I have difficulty gauging what happens because I use SMART orders, and even though I always add liquidity, commissions vary wildly depending on exchange.
IB - Are cancellation / modification fees shown separately?
thats a good point.. i didn't read that.. so you are posting orders and waiting till the market comes to you all the time? you know by electing fix cost you do not get paid order flow for doing that.. i've learned over time.. if i see an edge in a fly, i just wait for it to be priced right.. and i take the market at the mid or just above it..
I usually put in a limit order at mid or just above/below depending on buy/sell, ie I am not taking liquidity.
Did not realise the bit about fixed cost and order flow. Will need to revisit that when I get my computer back.
Some info as an experienced trader who trades a lot of options in IB:
1- Order cancellation fees are shown as fees in your daily statement only if the cancellation fees are more than your credit for option trades on that day
2- Cancellation fees do not apply to combinational orders because those orders are not directly sent to the exchanges. They get executed only if the order's condition is met. So you can cancel and modify your combinational orders one billion times a day (exaggeration) you don't pay any cancellation fee
3- MM can see your combinational orders and sometimes on very active options they try to make a deal on your order and execute it if it is somewhere in the middle or very close to get excecuted.
4- The chance that you get rebate on your combo option orders are much lower than single option orders as combo orders get executed when the price changes and they become like market orders.
5- When you close an option position for 1 cents, IB does not charge you any commission but if one leg of an option is traded at 1 cents, IB " might" charge you a commission. Say you want to close an option (buy an option) and sell same option for next month with the credit of 10 cents. You might see that the first let was bought at 1 cent and the second legt was sold at 11 cents and you were charged commission for both legs (not always). This happens and you should not complain because you had a combo order and your order was not specifically to close the first let at one cents.
1- Order cancellation fees are shown as fees in your daily statement only if the cancellation fees are more than your credit for option trades on that day
2- Cancellation fees do not apply to combinational orders because those orders are not directly sent to the exchanges. They get executed only if the order's condition is met. So you can cancel and modify your combinational orders one billion times a day (exaggeration) you don't pay any cancellation fee
3- MM can see your combinational orders and sometimes on very active options they try to make a deal on your order and execute it if it is somewhere in the middle or very close to get excecuted.
4- The chance that you get rebate on your combo option orders are much lower than single option orders as combo orders get executed when the price changes and they become like market orders.
5- When you close an option position for 1 cents, IB does not charge you any commission but if one leg of an option is traded at 1 cents, IB " might" charge you a commission. Say you want to close an option (buy an option) and sell same option for next month with the credit of 10 cents. You might see that the first let was bought at 1 cent and the second legt was sold at 11 cents and you were charged commission for both legs (not always). This happens and you should not complain because you had a combo order and your order was not specifically to close the first let at one cents.
Yes, I seem to recall making the logical decision based on size.
In any case for me not taking liquidity is not about getting paid, it's about not paying the spread. With a spread of 10% not uncommon for options combos, the saving there outweighs whatever I could get for adding liquidity.
For me I only hit the bid (in selling) and take the ask (when buying) when my gut feeling tells me that market is moving fast in one direction and if I don't sell/buy at bid/ask they will lower/increase their price or bid/ask gets very close to ask/bid that it does not make sense to wait.
Quote from hajimow:
Some info as an experienced trader who trades a lot of options in IB:
1- Order cancellation fees are shown as fees in your daily statement only if the cancellation fees are more than your credit for option trades on that day
2- Cancellation fees do not apply to combinational orders because those orders are not directly sent to the exchanges. They get executed only if the order's condition is met. So you can cancel and modify your combinational orders one billion times a day (exaggeration) you don't pay any cancellation fee
3- MM can see your combinational orders and sometimes on very active options they try to make a deal on your order and execute it if it is somewhere in the middle or very close to get excecuted.
4- The chance that you get rebate on your combo option orders are much lower than single option orders as combo orders get executed when the price changes and they become like market orders.
5- When you close an option position for 1 cents, IB does not charge you any commission but if one leg of an option is traded at 1 cents, IB " might" charge you a commission. Say you want to close an option (buy an option) and sell same option for next month with the credit of 10 cents. You might see that the first let was bought at 1 cent and the second legt was sold at 11 cents and you were charged commission for both legs (not always). This happens and you should not complain because you had a combo order and your order was not specifically to close the first let at one cents.
This is helpful, thanks.
Another idea for those who claim that IB's cancellation fee is still killing them and is a very big part of their trading cost is to add a 1 cent option to their single order option and make it a combo so they can cancel it anytime but the problem is that their oder won't be seen in the bid and ask because the order is not sent to the exchange. Let me explain.
You want to buy a 55 call for a stock that is trading at 50. Let's assume that the bid/ask is 0.2/0.25. You want to but 10 contracts at 0.24. If you put your order, for penny adjusted stocks the bid/ask will change to 0.20/0.24 ( for non penny adjusted options, you will still see 0.2/0.25 but you will be the first seller and your order will execute faster at 0.24 or even at 0.25 if there is a trade.
Now to bypass the cancellation fee, you can add to buy a very out of the money call/put which has no buyers and the ask is 0.01.
Then you can put a combo order to buy both at 0.25 (0.24+0.01).
Now if you change your mind and modify your combo order, you won't pay cancellation fee. However you will pay $1 for that almost worthless option. Who knows, that worthless option might also make you rich.
You want to buy a 55 call for a stock that is trading at 50. Let's assume that the bid/ask is 0.2/0.25. You want to but 10 contracts at 0.24. If you put your order, for penny adjusted stocks the bid/ask will change to 0.20/0.24 ( for non penny adjusted options, you will still see 0.2/0.25 but you will be the first seller and your order will execute faster at 0.24 or even at 0.25 if there is a trade.
Now to bypass the cancellation fee, you can add to buy a very out of the money call/put which has no buyers and the ask is 0.01.
Then you can put a combo order to buy both at 0.25 (0.24+0.01).
Now if you change your mind and modify your combo order, you won't pay cancellation fee. However you will pay $1 for that almost worthless option. Who knows, that worthless option might also make you rich.