IB - Direct and Smart Routing

[Trader_Herry]

Direct and Smart Routing

http://www.interactivebrokers.com/en/trading/orderRoutingLogics.php?ib_entity=llc

I read the above website, but I still don't understand for the following:

Smart Routing seems to be IB auto-routing system. Direct routing is that you can choose where to do rounting.

1)
Are Direct & Smart Routing applicable in ALL US market ONLY?
If so, what routing system markets outside US use?

2) How can I direct route my trades? In its website, when I click on "XX Direct Routing Destinations"; where XX can be anything like "Stock", "ETF", "Futures"; it directs me to the market exchange page. I'm confused.

3) What're the pros and cons between "DIRECT" and "SMART"?

4) Where can I learn more about "DIRECT"?

Thanks!

 

[momoneythansens]

Quote from Trader_Herry:

1)
Are Direct & Smart Routing applicable in ALL US market ONLY?
If so, what routing system markets outside US use?

If there is a product that is traded on more than one exchange that IB supports, I would say yes e.g. UK stocks.

Otherwise, direct routing to LIFFE,DTB,SGX,ASX etc. is used where appropriate.

2) How can I direct route my trades? In its website, when I click on "XX Direct Routing Destinations"; where XX can be anything like "Stock", "ETF", "Futures"; it directs me to the market exchange page. I'm confused.

What application are you using to trade? On TWS standalone for example, you choose the exchange to route to on the order ticket etc.

3) What're the pros and cons between "DIRECT" and "SMART"?

Different commissions.
For multi-leg option orders, each leg can be filled at different exchanges with NBBO and IB takes on the risk.
etc.

4) Where can I learn more about "DIRECT"?

What else do you need to know other than orders get routed to the exchange specified?

 

[momoneythansens]

Quote from Trader_Herry:

I'm asking about TWS.

OK, then you should be able to specify the exchange when selecting the underlying. If there isn't more than one exchange then SMART won't be an option. What are you trading?

So SMART should be necessarily better than DIRECT. Is that what you're trying to say?

It depends what you're trading and whether you need or have a preference to route directly to a specific exchange for a particular reason. If you aren't sure, then probably best to stick with SMART. Commissions can be significantly different too. SMART being cheaper. Check the website for the different costs as it depends what you're trading and where.

I don't know.

I'm a bit new at DIRECT. Maybe why I should direct my orders to a specific market exchange, and how this may make me better off. Something like that.

In the past, I never needed to worry about my order routing.

OK. In that case, I wouldn't worry about it until you come across a reason for specifically routing to a certain exchange. Stick to SMART if that is an option for what you are trading.

I primarily trade options so I might want to route to BOX for price improvement (moot because IB's SMART routes there by default for market orders) or ISE because I get better fills for the product I'm trading perhaps.

Depending on what you are trading and where, IB's live chat should be able to give you some tips on what will optimize your trading for you. Give it a go.

Good luck!

MoMoney.

 

[Trader_Herry]

Quote from momoneythansens:

What application are you using to trade? On TWS standalone for example, you choose the exchange to route to on the order ticket etc.

I'm asking about TWS.

Different commissions.
For multi-leg option orders, each leg can be filled at different exchanges with NBBO and IB takes on the risk.
etc.

National Best Bid and Offer...

What's the real risk IB take?

So SMART should be necessarily better than DIRECT. Is that what you're trying to say?

What else do you need to know other than orders get routed to the exchange specified?

I don't know.

I'm a bit new at DIRECT. Maybe why I should direct my orders to a specific market exchange, and how this may make me better off. Something like that.

In the past, I never needed to worry about my order routing.

 

[Trader_Herry]

Quote from momoneythansens:

OK, then you should be able to specify the exchange when selecting the underlying. If there isn't more than one exchange then SMART won't be an option. What are you trading?

For stock, I mainly trade HK and US.
For futures, I would like to trade worldwide futures. As to index futures, HK & US & Japanese indexes. I trade commodity futures too.
I like to trade forex futures. It appears there's a lot of unfairness and disadvantages in trading spot forex.

It depends what you're trading and whether you need or have a preference to route directly to a specific exchange for a particular reason. If you aren't sure, then probably best to stick with SMART. Commissions can be significantly different too. SMART being cheaper. Check the website for the different costs as it depends what you're trading and where.

You said IB take risks in SMART routing, What's the real risk IB take?

If I use DIRECT instead, it may be me to take the risk.

Do you think the SMART routing works well?

OK. In that case, I wouldn't worry about it until you come across a reason for specifically routing to a certain exchange. Stick to SMART if that is an option for what you are trading.

I primarily trade options so I might want to route to BOX for price improvement (moot because IB's SMART routes there by default for market orders) or ISE because I get better fills for the product I'm trading perhaps.

Depending on what you are trading and where, IB's live chat should be able to give you some tips on what will optimize your trading for you. Give it a go.

Good luck!

MoMoney.

Sounds good!
Thanks for your advice!

 

[momoneythansens]

Quote from Trader_Herry:


You said IB take risks in SMART routing, What's the real risk IB take?

From the website:

"IB SmartRouting represents each leg of a spread order independently and enters each leg at the best possible venue. This technology is so sound that IB undertakes the risk of partially executed spread orders by placing them into our error account."

So for option spreads, if the best price for each leg is at a different exchange, I would route to SMART and in theory, IB will leg into the spread at each exchange taking on the risk of failing to complete the spread.

MoMoney.

 

[Trader_Herry]

Quote from momoneythansens:

From the website:

"IB SmartRouting represents each leg of a spread order independently and enters each leg at the best possible venue. This technology is so sound that IB undertakes the risk of partially executed spread orders by placing them into our error account."

So for option spreads, if the best price for each leg is at a different exchange, I would route to SMART and in theory, IB will leg into the spread at each exchange taking on the risk of failing to complete the spread.

MoMoney.

What if IB fails to execute one leg?

What will IB do to remedy the situation?

 

[momoneythansens]

Quote from Trader_Herry:

What if IB fails to execute one leg?

What will IB do to remedy the situation?

They get placed in their error account as per the quote.

MoMoney.