IB - Getting paid to provide liquidity for options

[TheDawn]

I may be wrong, but I think per regulation, brokers and market makers have to either fill internally, or post an order to an exchange within a short timeframe. (I forgot how the rules differ for marketable orders and non-marketable limit orders.) I doubt a broker as big as IB would violate this regulation systematically.

I know and this is what I told them but they don't give a f . They kept telling me my price was not at the market so they can hold it on their server and only released it when it's close to the market NBBO or whatever BS. Trust me, I know how to add liquidity on exchanges. I have been trading for over 10 years. If IB doesn't do these crap shit to screw me, I would be making at least five figures just in rebates. LOL You want to complain to FINRA? Go ahead! They don't give a f . They tell you you can only do it after 90 days and then if you complain, they will just fire you. Like I said, they don't give a f !!

You are going to find, the trading world is full of BS and most of them are directed towards us retail traders because we are at the bottom of the food chain.

 

[tradegoodstocks]

I know and this is what I told them but they don't give a f . They kept telling me my price was not at the market so they can hold it on their server and only released it when it's close to the market NBBO or whatever BS. Trust me, I know how to add liquidity on exchanges. I have been trading for over 10 years. If IB doesn't do these crap shit to screw me, I would be making at least five figures just in rebates. LOL You want to complain to FINRA? Go ahead! They don't give a f . They tell you you can only do it after 90 days and then if you complain, they will just fire you. Like I said, they don't give a f !!

You are going to find, the trading world is full of BS and most of them are directed towards us retail traders because we are at the bottom of the food chain.

I have used mostly limit orders for many years at IB for my relatively high trading activity, routing to individual exchanges, and in the overwhelming majority of cases I received the exchange rebates as expected. The rare exceptions were scenarios when the market moved quickly. I think your fill also counts as taking liquidity when your order hits a standing hidden limit order on an individual exchange that was between the visible bid and ask; I think in some cases the hidden bid or ask on a specific exchange even crossed the visible bis/ask spread, which resulted in paying the liquidity taking fees, obviously in exchange for a good fill price.
IB shows the status of your order and where it is routed in real time in TWS. I often hate IB for many small issues with their platforms; but I don't think there is a systemic issue of the nature that you described.

 

[TheDawn]

I have used mostly limit orders for many years at IB for my relatively high trading activity, routing to individual exchanges, and in the overwhelming majority of cases I received the exchange rebates as expected. The rare exceptions were scenarios when the market moved quickly. I think your fill also counts as taking liquidity when your order hits a standing hidden limit order on an individual exchange that was between the visible bid and ask; I think in some cases the hidden bid or ask on a specific exchange even crossed the visible bis/ask spread, which resulted in paying the liquidity taking fees, obviously in exchange for a good fill price.
IB shows the status of your order and where it is routed in real time in TWS. I often hate IB for many small issues with their platforms; but I don't think there is a systemic issue of the nature that you described.

For all the times that my orders got counted as liquidity-taking orders, the market was not moving fast. And it was not a coincidence that somehow as soon as IB sent my orders to the market that somehow there were always orders just happen to be sitting there and hitting my orders the second that they hit the exchange. LOL My orders were not NBBO and I could see the time that IB sent the orders was not the time that I submitted the orders so there were obviously delays, delays that IB created on purpose obviously to make sure to send my orders to the exchanges to hit existing orders in the exchanges so my orders become market orders taking liquidity.

Your initial post gave an impression that you just discovered that IB allows you to earn rebates when trading and you were looking for inputs so how is it all of sudden that you have many years of experience earning rebates at IB? LOL What kind of "input" were you seeking then? Just for us to pat you on the head and say "Good job!"?. LOL

Anyway that's my input. If you are thinking of earning rebates while trading at IB, you CAN earn rebates but only at the beginning and not for long. Once IB catches on, they WILL do all kinds of manipulations to screw up your orders so your limit orders become market orders and you pay even higher commission. Consider yourself warned.

 

[tradegoodstocks]

For all the times that my orders got counted as liquidity-taking orders, the market was not moving fast. And it was not a coincidence that somehow as soon as IB sent my orders to the market that somehow there were always orders just happen to be sitting there and hitting my orders the second that they hit the exchange. LOL My orders were not NBBO and I could see the time that IB sent the orders was not the time that I submitted the orders so there were obviously delays, delays that IB created on purpose obviously to make sure to send my orders to the exchanges to hit existing orders in the exchanges so my orders become market orders taking liquidity.

Your initial post gave an impression that you just discovered that IB allows you to earn rebates when trading and you were looking for inputs so how is it all of sudden that you have many years of experience earning rebates at IB? LOL What kind of "input" were you seeking then? Just for us to pat you on the head and say "Good job!"?. LOL

Anyway that's my input. If you are thinking of earning rebates while trading at IB, you CAN earn rebates but only at the beginning and not for long. Once IB catches on, they WILL do all kinds of manipulations to screw up your orders so your limit orders become market orders and you pay even higher commission. Consider yourself warned.

Like I said I didn't have your experience after many thousands of limit orders. Perhaps they singled you out I'm not sure which question in which initial post you mean; but I'm always interested in factual evidence of ways to minimize the all-in cost of order routing strategies, which is not easy to come by and hard to collect yourself short of doing a science project in and by itself. No, I don't need cheerleading, please don't waste my time; please only reply with constructive, factual input.

 

[Robert Morse]

I can only tell you what fits my trading and extensive experience in options. This does not mean it is best for you. While trading volatile symbols, my buy entry price would typically be 25% of my planned size at the mid-point. Then I would enter 25% on the bid. I would allow time to pass, the amount of time depends on the stock, maybe 1 to 2 minutes. If the midpoint were to move away or I do not get filled, I would step up my midpoint limit until I get a fill. This way if the stock were to run up, I had something. Then I would add another bid at the midpoint. I would keep doing that over time, adjusted for my expectations until I get my target positions. When I want to get out, I tend to be more aggressive but use the same process. I might lower my midpoint offers faster. In my mind, when I want to get in, I'd rather miss a trade than pay too much. But when I want to get out, I want to get out. I also know through many years of experience, that I'm not often right in the first time frame. I often could do better if I wait on entry. What I have learned is not to harp on the small number of mistakes. I got in too early ; I got out too early, I should have stopped myself out etc. My process is designed to view what is better for me if I do this 1000 times. What maximizes my risk/reward? When I was a MM, Market orders by customers were awesome for me. They were the bread and butter of our P/L. There are very few instances in options where I would use a Market Order for my own account. I feel the same way about Option STOP orders. I know that some executions during times of stress can be nasty. Not for me. When it comes to a SMART route or choosing an option exchange, I would 100% want to add liquidity as often as I can and get paid. Then try and minimize my cost when using more aggressive orders and I have to trade with the bid or ask. Our SMART route does that. Using Sterling Trader Pro, EZE EMS or for PMA only- CBOE Silexx, we offer those choices. Lightspeed Trader and Lightspeed Web&Mobile are generally set up for SMART routing. Our new Lightspeed Connect API with have both too.

 

[TheDawn]

Like I said I didn't have your experience after many thousands of limit orders. Perhaps they singled you out I'm not sure which question in which initial post you mean; but I'm always interested in factual evidence of ways to minimize the all-in cost of order routing strategies, which is not easy to come by and hard to collect yourself short of doing a science project in and by itself. No, I don't need cheerleading, please don't waste my time; please only reply with constructive, factual input.

Why would they single me out when I am doing exactly what they allow and exactly what you do at Fidelity? LOL If they single me out, that means they discourage traders earning rebates with them. You are thinking of going with IB, I am giving you factual evidence of what happened to me at IB. You didn't have the same experience as I have because you are not trading with IB; you are with Fidelity as what you stated in your initial post.

Hi all,

I just stumbled upon the fact that you can be paid rebates for providing liquidity on IB and was curious if anyone here does this and can help me assess the pros and cons.

For background, I currently use Fidelity. After doing some initial research online, I've read Fidelity often provides better fills than IB - and I have received price improvements many times (although I hate that I often have to place orders in 5c increments for many option limit orders- does IB do this as well?)

You don't want to believe me and still want to go with IB and find out for yourself what I described, it's your choice but come out here and call people lying especially when you are the one who's seeking "inputs". LOL

Long time reader, first post - appreciate all the input in advance.

 

[tradegoodstocks]

Why would they single me out when I am doing exactly what they allow and exactly what you do at Fidelity? LOL If they single me out, that means they discourage traders earning rebates with them. You are thinking of going with IB, I am giving you factual evidence of what happened to me at IB. You didn't have the same experience as I have because you are not trading with IB; you are with Fidelity as what you stated in your initial post.



You don't want to believe me and still want to go with IB and find out for yourself what I described, it's your choice but come out here and call people lying especially when you are the one who's seeking "inputs". LOL

I think you are mixing up different users; but I am with IB, and my report about limit orders relates to my trading with IB.

 

[tradegoodstocks]

I can only tell you what fits my trading and extensive experience in options. This does not mean it is best for you. While trading volatile symbols, my buy entry price would typically be 25% of my planned size at the mid-point. Then I would enter 25% on the bid. I would allow time to pass, the amount of time depends on the stock, maybe 1 to 2 minutes. If the midpoint were to move away or I do not get filled, I would step up my midpoint limit until I get a fill. This way if the stock were to run up, I had something. Then I would add another bid at the midpoint. I would keep doing that over time, adjusted for my expectations until I get my target positions. When I want to get out, I tend to be more aggressive but use the same process. I might lower my midpoint offers faster. In my mind, when I want to get in, I'd rather miss a trade than pay too much. But when I want to get out, I want to get out. I also know through many years of experience, that I'm not often right in the first time frame. I often could do better if I wait on entry. What I have learned is not to harp on the small number of mistakes. I got in too early ; I got out too early, I should have stopped myself out etc. My process is designed to view what is better for me if I do this 1000 times. What maximizes my risk/reward? When I was a MM, Market orders by customers were awesome for me. They were the bread and butter of our P/L. There are very few instances in options where I would use a Market Order for my own account. I feel the same way about Option STOP orders. I know that some executions during times of stress can be nasty. Not for me. When it comes to a SMART route or choosing an option exchange, I would 100% want to add liquidity as often as I can and get paid. Then try and minimize my cost when using more aggressive orders and I have to trade with the bid or ask. Our SMART route does that. Using Sterling Trader Pro, EZE EMS or for PMA only- CBOE Silexx, we offer those choices. Lightspeed Trader and Lightspeed Web&Mobile are generally set up for SMART routing. Our new Lightspeed Connect API with have both too.

Thanks, but this is just anecdotal, like you said. It is easy to fool oneself; the mental accounting tends to forget or omit infrequent but small "outliers" e.g. from performance chasing when the market moves away. The fact that you made money as a MM with customer market orders does not imply that market orders are worse than limit orders for customers. In fact for equities with the U.S. market microstructure, I am quite sure based on evidence that small market orders have lower all-in trade cost than non-marketable limit orders in the long run average; and I think the U.S. equity options market is organized similar to the U.S. equities market. We're obviously only talking about time insensitive traders or investors who can afford "lazy" trading in the first place; if execution speed or volume are critical, market orders are a no brainer.

 

[TheDawn]

I think you are mixing up different users; but I am with IB, and my report about limit orders relates to my trading with IB.

Hi all,

I just stumbled upon the fact that you can be paid rebates for providing liquidity on IB and was curious if anyone here does this and can help me assess the pros and cons.

For background, I currently use Fidelity. After doing some initial research online, I've read Fidelity often provides better fills than IB - and I have received price improvements many times (although I hate that I often have to place orders in 5c increments for many option limit orders- does IB do this as well?)

No, I am not mixing up users. LOL

Anyway I cautioned you about the pro's and con's of trying to earn rebates with IB as you wished. Consider yourself warned.

 

[Robert Morse]

Well, you are entitled to your opinion. Unless option markets are penny wide, I see a large number of prints in-between the bid/ask spread and the cost savings can be material with or without rebates. I wonder is @ORATS has done any studies to show the percent of executions done between the bid/ask?

The fact that you made money as a MM with customer market orders does not imply that market orders are worse than limit orders for customers.