Does IB Internalize Option Orders?

C

Chris311

I have accounts at both IB and TOS. I have always used IB for my active trading because of the low commissions. Lately on a few ocasiina i have had spread orders that were not filling at IB. Just for fun i would put the same order in on TOS and it filled instantly while my IB order still sat there. I can understand this happening once as a fluke but i have now done it 3 times in the last month. I have seen on here where IB denies internalizing their orders however i have seen other reviews sayimg they do. I like the TOS platdoem better bit stay away from using it because of commissions. But having seen the order fills, the extra TOS commissions are nullified if i am consistently getting better fills. Can anyone provide insight on this issue and whether or not IB internalizes the smart routed and does not place them on the exchange?
 
Both TD and IB receive Payment for order flow for some of their options orders. In fact it is very standard in the industry. The difference is that complex orders from TD can easily be sent one of three exchanges while IB charges extra for DMA and makes it a little difficult to set up. Also, "smart" complex orders from IB don't get directly sent and populated on the COB on an option exchange until their algorithm deems that it can be executed. So, you in general,you are not subject to other firms hitting your bid or taking your offer at IB but you're at TD.

I closed my account at IB a few years ago because of that.

Bob
 
rmorse said:
Both TD and IB receive Payment for order flow for some of their options orders. In fact it is very standard in the industry. The difference is that complex orders from TD can easily be sent one of three exchanges while IB charges extra for DMA and makes it a little difficult to set up. Also, "smart" complex orders from IB don't get directly sent and populated on the COB on an option exchange until their algorithm deems that it can be executed. So, you in general,you are not subject to other firms hitting your bid or taking your offer at IB but you're at TD.

I closed my account at IB a few years ago because of that.

Bob
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Thanks Bob, as someone who primarily trades spreads, flies, etc., does that mean when entering them on TOS i should specify a routing imstruction or just keep the default and it will post it on all exchanges? Sorry for the lack of inderatanding, been trading for 2p years but am new to the options world and i havent been able to find good info on either broker site.
 
I have a TD account for my Roth IRA. I have tried letting them decide and I have cancelled/replaced my orders from exchange to exchange. When it will make a nominal difference is with the symbols that have a large rebate/fee for the maker/taker set up. If a market maker has to pay a lot to trade with you on one exchange and the edge is marginal, it might make a difference to send it to an exchange that won't charge them. Otherwise the big market makers monitor electronically all the COBs. Also, TD does not pass though the maker/taker fees while IB does. At TD you don't have to educate yourself on these fees.

You can try both and see what works. I have not found it makes a difference overall.
 
rmorse said:
I have a TD account for my Roth IRA. I have tried letting them decide and I have cancelled/replaced my orders from exchange to exchange. When it will make a nominal difference is with the symbols that have a large rebate/fee for the maker/taker set up. If a market maker has to pay a lot to trade with you on one exchange and the edge is marginal, it might make a difference to send it to an exchange that won't charge them. Otherwise the big market makers monitor electronically all the COBs. Also, TD does not pass though the maker/taker fees while IB does. At TD you don't have to educate yourself on these fees.

You can try both and see what works. I have not found it makes a difference overall.
More...

Thanks man. Happy new year.
 
yes. That is my expectation. You can test it. Route your order to the CBOE COB at a price where you are the best bid or offer but don't expect an execution. Then look for it here: http://www.cboe.com/cob/cob.aspx

Don't forget to filter for your symbol and type of spread so it is easy to view.
 
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