IB commissions (tiered) - have I got this right?

M

movingslow

I'm a beginner and have been taking a look at different brokers and their commissions.

For stock trading, Interactive Brokers offers a tiered system, where, in addition to a volume based fee, exchange fees are calculated separately.

As far as I can understand, if you add liquidity, meaning that you place limit orders instead of market orders or trade at open or close auctions, the commission can actually be close to zero or even negative (if you trade a lot). Is this correct?

Is there a catch here? For example, can limit orders be cancelled or changed without any additional cost and still qualify for "adding liquidity"?

Can I place a limit order midway between the bid and ask, and qualify for adding liquidity?
 
Note that not all limit orders add liquidity. Marketable vs. non-marketable is how IB defines it: https://ibkr.info/article/194

I'm not sure it's possible (with IB) to get commission down to near-negative values, unless you're maybe in the highest volume tier. But it's been a while since I tried calculating this. You'll have to ask yourself if missing the occasional trade setup in order to save a few cents on commission is worth it for your trading style.
 
movingslow said:
I'm a beginner and have been taking a look at different brokers and their commissions.

For stock trading, Interactive Brokers offers a tiered system, where, in addition to a volume based fee, exchange fees are calculated separately.

As far as I can understand, if you add liquidity, meaning that you place limit orders instead of market orders or trade at open or close auctions, the commission can actually be close to zero or even negative (if you trade a lot). Is this correct?

Is there a catch here? For example, can limit orders be cancelled or changed without any additional cost and still qualify for "adding liquidity"?

Can I place a limit order midway between the bid and ask, and qualify for adding liquidity?
More...
Yes correct and no, no catch.

Most beginners think tiered must be more expensive for them (why else would there be a fixed / all in structure).

Tiered might only be a bit more expensive if you always remove liquidity (then it still is probably equal cost because you then also hit BZX, EDGA, etc.). But no sane person does that.
 
Thanks! For NYSE fees, for example, there is a difference between different "tapes" (A, B, C). I have no idea what these are? These have different fees attached to them. Does one select between the tapes when placing an order, or how does this work?

Also, is there some kind of smart order routing in place which makes the exchange fee somewhat random, or do you manually pick the exchange and hence know the fee in advance?
 
Tape A (and nowadays also B) is owned by NYSE, C by Nasdaq.

Most exchanges (like the most relevant ones (ARCA, ISLAND, BATS and EDGX)) use the same fee for all stocks.

Also, is there some kind of smart order routing in place which makes the exchange fee somewhat random, or do you manually pick the exchange and hence know the fee in advance?
More...
If you add liquidity (and are looking for the lowest cost) just manually pick the exchange (if your broker doesn't charge extra of course).
 
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