How I beat my broker, so they can't front run me.

[riskfreetrading]

Do not listen to the responses from IB (I read at least one of them in this thread). Timber Hill (a market maker) is part of IB.
And they ride on the back of their customers (if it suits them of
course). I have three OPTION brokerages accounts. Sometimes I notice the following: I place orders on SMART (if you were to send an order direct to an exchange the commission is three times higher than SMART, so they must gain something as they charge less commission if they choose the exchange for you rather than you deciding on the exchange). Many things can happen:

1. They many not show your order at all, even if the order is better than NBBO.
2. Sometimes my limit order should be filled instantly as it meets the NBBO. They do not do it, and make you wait.
3. The most insulting of all I find is this: suppose your order can be filled at two exchanges A and B. Timber Hill is at A. If they sent the order to B you would receive a liquidity rebate. If they sent it to A it may happen that you will be viewed as liquidity taker, so exhange B charges you for it. The net effect is that you are paying for liquity at B, and missing being paid for liquity at A. The net for this can be more than $1 (more than the IB commission) per option contract. But they do this because Timber Hill has to be served first, not you the customer.

IB may say that point 3 is not true. I challenge them to do the following. Allow the customer to specify in SMART orders that the order cannot go to exchanges that charge for liquidity. They should say yes to this as if should "not cost" them anything. But they will say no because Timber Hill has to be fed first (at the possible expense of the customer order).

If Timber Hill is both at A and B, they should at least send it to the exchange that lead to the best liquidity rebate/charge for your order. But they do not do this either. They may send your business to an exchange where it will cost you more, even if Timber Hill is fed no matter what. Maybe exchanges pay them back a kickback of sorts...

The rules of engagement of SMART/IB/TimberHill/Exchanges are not explicit to the customer. The only reason I think customers are not voicing this is that it is hard to find other brokers than charge less than a $1 per contract and no ticket charge. I look forward to the day when the option commissions will go below $1 for all most brokers. That day, IB will either drop commissions
further or bite the dust...

 

[Trayo]

Quote from DHOHHI:

So there's no way once they're sent for someone else to send an identical order at an earlier time and thus "front run" the original order. [/B]

>>>But according the prior post, larger limit orders bump smaller limit orders.

I thought CME was FIFO. Does anyone know for sure?

 

[def]

Quote from riskfreetrading:

Do not listen to the responses from IB (I read at least one of them in this thread). Timber Hill (a market maker) is part of IB.
And they ride on the back of their customers (if it suits them of
course). I have three OPTION brokerages accounts. Sometimes I notice the following: I place orders on SMART (if you were to send an order direct to an exchange the commission is three times higher than SMART, so they must gain something as they charge less commission if they choose the exchange for you rather than you deciding on the exchange). Many things can happen:

1. They many not show your order at all, even if the order is better than NBBO.
2. Sometimes my limit order should be filled instantly as it meets the NBBO. They do not do it, and make you wait.
3. The most insulting of all I find is this: suppose your order can be filled at two exchanges A and B. Timber Hill is at A. If they sent the order to B you would receive a liquidity rebate. If they sent it to A it may happen that you will be viewed as liquidity taker, so exhange B charges you for it. The net effect is that you are paying for liquity at B, and missing being paid for liquity at A. The net for this can be more than $1 (more than the IB commission) per option contract. But they do this because Timber Hill has to be served first, not you the customer.

IB may say that point 3 is not true. I challenge them to do the following. Allow the customer to specify in SMART orders that the order cannot go to exchanges that charge for liquidity. They should say yes to this as if should "not cost" them anything. But they will say no because Timber Hill has to be fed first (at the possible expense of the customer order).

If Timber Hill is both at A and B, they should at least send it to the exchange that lead to the best liquidity rebate/charge for your order. But they do not do this either. They may send your business to an exchange where it will cost you more, even if Timber Hill is fed no matter what. Maybe exchanges pay them back a kickback of sorts...

The rules of engagement of SMART/IB/TimberHill/Exchanges are not explicit to the customer. The only reason I think customers are not voicing this is that it is hard to find other brokers than charge less than a $1 per contract and no ticket charge. I look forward to the day when the option commissions will go below $1 for all most brokers. That day, IB will either drop commissions
further or bite the dust...

Don't listen to me? Hmmm, I think I know a little bit more about the firms practices on the trading side than you. I also think the chairman who explicitly states that we don't do this in the earnings conference call the other day knows a few things about this as well. If you don't believe that, read the regulatory reports.

The initial poster is talking FUTURES. Let's be realistic. All orders are sent directly to an exchange FIFO. He's also trading YM and seems to be placing market orders. My guess he's getting some slippage and blames front running as opposed to market liquidity.

Now you talk options, and say we "ride customers". That's interesting since the market makers are price PROVIDERS. They have prices on the screens.

And then you have state: "The only reason I think customers are not voicing this is that it is hard to find other brokers than charge less than a $1 per contract and no ticket charge".

So, there aren't many brokers charging < $1 per contract and I suspect there are even less providing liquidity rebates on options. This implies our fees are better and I know that our executions are better (independent audit also shows we provide price improvement 14.85% of the time vs the industry average of < 0.57%).

So our commissions are better, executions are better and you feel insulted. The rules of engagement are explicit. IB's aim is to get the best price/execution for it's clients. Hard to believe but it's that simple.

 

[11Blade]

Quote from naked:

I trade with IB mainly, they are not bad for most part but only a fool does not know how things run behind the scenes in a typical brokerage.

Jeez, another front-running thread.

Why do people insist on using IB if they think they are not getting a fair-shake?

is it because the difference between another direct-access broker and IB is more than slippage resulting from IB's supposed "malfeasance"?

"only a fool does not know how things run behind the scenes."

I'd say that man non-fools do not know...

I'm sure Def will be on shortly. I just don't see any reason why they(IB) needs to do this?

they are in the business of providing liquidity, order flow, execution and routing with all the rewards that provides.

Good luck, happy trading

 

[Jayford]

considering my fills take about a second, I don't see how the front running could happen. All trades are automatically routed. no humans are involved. no way they could possibly work that fast. This is futures trading. no way in hell would I ever day trade equities again. What a fucking nightmare that was.

With futures, it's auto routed and computer matched. IB couldn't front run even if they wanted to.

 

[jd7419]

Quote from doli:

Orders have to at least get by the "margin clerk" before they go to the exchange.

Orders are transmitted in milliseconds. Sometimes thousands of orders are placed, cancelled, and moved up from one account in very short periods of time. Software will reject orders if there is not enough bp, not some little margin clerk monitoring 500 black boxes.

 

[Trayo]

Quote from def:


The initial poster is talking FUTURES. Let's be realistic. All orders are sent directly to an exchange FIFO.

>>>>Thanks for clarifying DEF.

>>>>So big orders no longer bump little orders in the Globex book?

 

[commiebat]

Quote from riskfreetrading:

Sometimes I notice the following: I place orders on SMART (if you were to send an order direct to an exchange the commission is three times higher than SMART, so they must gain something as they charge less commission if they choose the exchange for you rather than you deciding on the exchange).

I think I know what they gain from it.

If they route your order themselves and get you a fill, they get paid. If you route your order yourself and it goes to the wrong exchange and you don't get a fill, they don't get paid.

When you trade more volume more easily, both you and your broker win.

 

[minmike]

Quote from Trayo:

Quote from def:


The initial poster is talking FUTURES. Let's be realistic. All orders are sent directly to an exchange FIFO.

>>>>Thanks for clarifying DEF.

>>>>So big orders no longer bump little orders in the Globex book?

equities and currencies are FIFO

Eurodollars (interest rate) are size weighted.

 

[xflat2186]

Quote from riskfreetrading:

Do not listen to the responses from IB (I read at least one of them in this thread). Timber Hill (a market maker) is part of IB.
And they ride on the back of their customers (if it suits them of
course). I have three OPTION brokerages accounts. Sometimes I notice the following: I place orders on SMART (if you were to send an order direct to an exchange the commission is three times higher than SMART, so they must gain something as they charge less commission if they choose the exchange for you rather than you deciding on the exchange). Many things can happen:

1. They many not show your order at all, even if the order is better than NBBO.
2. Sometimes my limit order should be filled instantly as it meets the NBBO. They do not do it, and make you wait.
3. The most insulting of all I find is this: suppose your order can be filled at two exchanges A and B. Timber Hill is at A. If they sent the order to B you would receive a liquidity rebate. If they sent it to A it may happen that you will be viewed as liquidity taker, so exhange B charges you for it. The net effect is that you are paying for liquity at B, and missing being paid for liquity at A. The net for this can be more than $1 (more than the IB commission) per option contract. But they do this because Timber Hill has to be served first, not you the customer.

IB may say that point 3 is not true. I challenge them to do the following. Allow the customer to specify in SMART orders that the order cannot go to exchanges that charge for liquidity. They should say yes to this as if should "not cost" them anything. But they will say no because Timber Hill has to be fed first (at the possible expense of the customer order).

If Timber Hill is both at A and B, they should at least send it to the exchange that lead to the best liquidity rebate/charge for your order. But they do not do this either. They may send your business to an exchange where it will cost you more, even if Timber Hill is fed no matter what. Maybe exchanges pay them back a kickback of sorts...

The rules of engagement of SMART/IB/TimberHill/Exchanges are not explicit to the customer. The only reason I think customers are not voicing this is that it is hard to find other brokers than charge less than a $1 per contract and no ticket charge. I look forward to the day when the option commissions will go below $1 for all most brokers. That day, IB will either drop commissions
further or bite the dust...

Just like all brokers IAB is part of the payment for order flow system which is in use at ALL 6 options exchanges in one form or another. Since you're a retail customer you are guaranteed NBBO. There is no way that if you enter an order which improves the NBBO or trades on/thru it you won’t get the NBBO. If you don’t get it then it’s YOUR obligation to call your broker and they will give you the NBBO price, it’s not their call.

I agree with many of the other posters these paranoia threads, although amusing, gets old quickly. Since IAB has payment for order flow on pure retail customer order flow with the exchanges they would naturally send your order to an exchange where a) they have the best payment for order flow deal and b) they make a market in that option thus giving them a shot at the order too. Either way YOU GET THE NBBO.

As I mentioned in another thread "risk free trading" name implies that you really don’t understand risk and this thread is further evidence you don’t even understand market mechanics.