IB's option cancellation fee

[Options12]

Quote from 489:

Things have changed and in today's fully-electronic, HFT environment where trades occur in milliseconds, bust/adjust and auto-liquidation rules must be pre-programmed. Today brokers no longer have the luxury of calling clients to ask for a check that may never be forthcoming.

When NYSE goes back to full manual trading with Wednesdays off to catch up on the paperwork we can revisit.

And it must be noted that auto-liquidation in a fully electronic environment may not reduce risk for either the customer or broker.

Please read and understand the implications of the original post in the following thread written the day after the May 6, 2010 flash crash:

Should you close your IB accounts now?

http://www.elitetrader.com/vb/showthread.php?s=&threadid=198220&perpage=6&pagenumber=1

 

[489]

The original post referenced trading two different asset classes, stocks and futures. Keep you hedge in the same asset class that trades and settles at the same time. Also, you must realize that the auto-liquidation is a key component of IB's offering and will never be changed. If you cannot accept that, then yes, you should switch brokers.

Finally, you make the same point as I did; bust/adjust rules need to be written in such a way so they can be pre-programmed by technologically savvy brokers to eliminate unknown risks. If that were the case, brokers would not allow executions to take place that would definatley be busted later. Therefore, the onus is on the exchnages and regualtors to come up with a consistent set of rules before the next flash crash.

 

[Options12]

rew, be aware that auto-liquidation algos may not properly recognize your hedge even if the hedge is constructed from positions in the same asset class.

Software should never be programmed to make trades that increase risk in a customer portfolio.

For more examples of auto-liquidation algos gone wild during the last flash crash, see this thread:

Quote from somedudetrader:

I had long June SPY 119 PUT options and short June SPY 114 PUT options today, and they were liquidated during the volatile trading period. They were liquidated at the time when SPY was trading at 110-111.

Simple math tells me that at the very very least, my 119 PUT options should be worth $8 - $9, since a put option gives me the right to sell SPY at 119, and given SPY being at 110-111 at the time, this option should at least be worth $8 - $9 (which should be much more, given the volatility and time value). I was liquidated at $5. My 114 short puts were liquidated at > $8.

First of all, my PUTs were evenly hedge, so every point lost by the 114 short PUT in the falling market is gained by the 119 long PUT. So why was I liquidated by Interactive Brokers?? Also, the prices were unreasonable as explained above, which caused me losses in the 5 figures. How should I get this compensated?

http://www.elitetrader.com/vb/showthread.php?s=&threadid=198144&perpage=6&pagenumber=1

 

[stock777]

cancel fees are there so the crooks making wide markets dont have competition from you.

 

[babutime]

Quote from stock777:

cancel fees are there so the crooks making wide markets dont have competition from you.

lol @ crooks

If you were a marketmaker I'm sure you'd do the same... I know I would.

 

[Options12]

Quote from 489:

Finally, you make the same point as I did; bust/adjust rules need to be written in such a way so they can be pre-programmed by technologically savvy brokers to eliminate unknown risks. If that were the case, brokers would not allow executions to take place that would definatley be busted later.

489, I don't understand what point you are referring to here.

Are you saying that brokers are unable to program automated systems to prevent erroneous executions because the brokers lack guidance from regulators and exchanges regarding what erroneous means?

 

[Options12]

Quote from rmorse:

That quote was from weeks ago and I was incorrect. I assumed IB charged cancelation fees from their own trading. I was wrong. Now, I have No idea why they charge everyone for cancellations. I don't know any other broker that charges everyone.

Traders may believe that the cancellation fees are being passed through to them by IB.

However, IB explains why their cancellation fees may not reflect actual fees charged by the exchanges (emphasis added):

Many exchanges charge fees to their members for orders that are cancelled or modified, and IB charges certain related fees to its customers to help cover these exchange fees. Please note however, that the Modify/Cancel fees listed below may not be a direct "pass-through" of exchange fees in all cases as IB has created cancellation policy based on ease of implementation and proper resource allocation.

from http://www.interactivebrokers.com/en/p.php?f=otherFees&ib_entity=llc

 

[rmorse]

Quote from Options12:

Traders may believe that the cancellation fees are being passed through to them by IB.

However, IB explains why their cancellation fees may not reflect actual fees charged by the exchanges (emphasis added):

Many exchanges charge fees to their members for orders that are cancelled or modified, and IB charges certain related fees to its customers to help cover these exchange fees. Please note however, that the Modify/Cancel fees listed below may not be a direct "pass-through" of exchange fees in all cases as IB has created cancellation policy based on ease of implementation and proper resource allocation.

from http://www.interactivebrokers.com/en/p.php?f=otherFees&ib_entity=llc

Are you saying it's OK to charge cancellation fees to everyone because it's easier then charging just those traders that earn them from the exchanges?

 

[Options12]

Quote from rmorse:

Are you saying it's OK to charge cancellation fees to everyone because it's easier then charging just those traders that earn them from the exchanges?

IB might be saying that.

Like you, I'd thought the IB cancellation fee was a pass-through fee; a part of transparent pricing for direct access trading.

I was surprised to read otherwise.

 

[spindr0]

I don't get all the carping about the cancel fees. If your style of trading (frequency, size, etc.) results in more net profit at IB, despite their cancel fees, you trade with them. If you can do better elsewhere, you trade there. Maximizing return is the game.