How do you work around IB's unusual Stop Order handling for NASDAQ stocks?

S

stock_punter

As you may know, Interactive Broker has an unusual way of handling stop orders for Nasdaq stocks. Here's how:

"In regards to NASD stocks and US equity option, IB will elect Buy-Stop orders only after we see a bid at the stop price and subsequently confirm a second bid. Only after we confirm a second bid will we send in the order. Likewise, IB will elect Sell-Stop orders only after we see an offer at the stop price and subsequently confirm a second offer. Only after we confirm a second offer will we send the order."

Other brokers who I've dealt with handle NASDAQ stops differently. For buy stops, usually the order is activated when the stop price is reached on the best offer on the Nasdaq.

Relative to how other brokers handle's stops, IB's method can take longer to execute, and result in a poorer fill.

How do you work around IB's stop order handling, if at all?

Thanks.

-- Punter
 
I guess at what the spread will be and set my stop based on that. For example if I'm long MSFT and want to be stopped out at 54.25, I would set my stop at around 54.28, guessing a .03 spread. If your stop is below a clearly defined support area, you might compensate for a faster moving market with wider spreads as lots of other stops are triggered just below support. It depends on the liquidity of the stock.
 
It can be tricky. I don't trade anything that regularly carries a spread of .08-.10 or more in my IB account. I would also suggest trading in a very tight range with regard to the stop...for instance if xx.50 is strong support and has held well and has many L II buyers showing at exactly xx.50, buy in the low xx.50's and immediately place the stop at xx.50. Since the ask must print twice, you will know for sure that all buyers at xx.50 are gone.

In my experience, you will almost always be filled above xx.45 in these situations and the risk reward is excellent. Good Luck.
 
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