Interactive Brokers Implements Price Caps
- Thread starter ajcrshr
- Start date
Def, thanks for taking the time to respond. I worked in retail brokerage for the better part of a decade and fully understand the regulatory headaches, but the exchange bands for futures are really pretty conservative nowadays - they've been tightened considerably in the last few years. I trade through 2 other FCM's besides IB and overriding customer orders in futures is unheard of - nobody does it.
Say the ES future opens down 50 points on cataclysmic news over the weekend - your (IB's) price cap band is anchored to the previous Friday's close. I want to liquidate a long position on the open, but you prevent me from selling down 2% from last tick. One minute later when your moving average catches up and the order is uncapped, ES is limit down 120 points. Now this may be exceedingly rare (more common in agricultural futures), but it's a devastating scenario for a customer who moves in good faith to mitigate risk.
Here are the current exchange price bands - just for example ES is 6 points, and CL is 75 cents, both well under 2%:
https://www.theice.com/publicdocs/futures/No_Cancellation_Ranges.pdf
http://www.cmegroup.com/globex/files/globex-product-reference-sheet.xls
Disruptive out of range trades can be nearly eradicated through mandatory pop-up confirmation windows, both at the client software and server level. I also think we can draw a distinction between a 10 cent Malaysian stock and highly liquid futures.
Good point @atrocious .
Also, @def ... are the price caps different for different products/stocks.. You mentioned a 10ct stock moving 5 cents... I don't find that very shocking since penny stocks move like that all the time. What if there's a stock with a quote of 0.01 @ 0.02? So I couldn't possibly trade this?
Can clients opt out of the price capping?
JR
Also, @def ... are the price caps different for different products/stocks.. You mentioned a 10ct stock moving 5 cents... I don't find that very shocking since penny stocks move like that all the time. What if there's a stock with a quote of 0.01 @ 0.02? So I couldn't possibly trade this?
Can clients opt out of the price capping?
JR
def
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spstpd: these are not being implemented because we are "big brother". they are regulatory driven.
atrocious: there are other factors in the caps besides moving average and I don't think the scenario you provide would happen as the caps don't work that way. In addition the <2% bands imposed by the exchange as you explain, I think would be more restrictive than what we have in place. The issues I've seen with futures (and I see mostly Asian issues as I'm based in Asia) mostly occur on the less liquid outer months. Pop ups certainly help when we get regulatory queries - ie. the client confirmed and agreed, etc etc, but don't eliminate the risk or a regulatory query.
JackRab: the filters are fairly sophisticated and a ten cent stock is not the same as a $50 stock. However, in your example above, assuming the move is > 2 minimum ticks, there is one exchange (nonUS) that would probably hit you up for very large fines for that stock movement. Really no joke. Caps can be reviewed by designated reps so if you hit one that you think is overly restrictive, give a call. That would mean the stock/future isn't trading because if it was, the reference price would very quickly adjust.
In any event, I think the issue in this thread is being overblown. While you can not opt out, I suspect most clients rarely come up against a cap and if they do and I think the caps have been designed to reflect market conditions real time (ie. rarely impact a client).
As an aside, the real way to get rid of such caps would be for exchanges or regulators to publish specific rules and criteria that we should either follow or better yet, have their own reference price calculation which would put all brokers on the same level playing field. Until this occurs (and I'm not optimistic), the onus is on the brokers who have to balance the cost of regulatory queries, fines vs commissions and client satisfaction. You've got to keep in mind we don't get paid unless you trade and hence have all great incentive to allowing your orders to go through.
i know my comments are overly simplistic but i'm just trying to give an overview. hopes his helps your understanding
atrocious: there are other factors in the caps besides moving average and I don't think the scenario you provide would happen as the caps don't work that way. In addition the <2% bands imposed by the exchange as you explain, I think would be more restrictive than what we have in place. The issues I've seen with futures (and I see mostly Asian issues as I'm based in Asia) mostly occur on the less liquid outer months. Pop ups certainly help when we get regulatory queries - ie. the client confirmed and agreed, etc etc, but don't eliminate the risk or a regulatory query.
JackRab: the filters are fairly sophisticated and a ten cent stock is not the same as a $50 stock. However, in your example above, assuming the move is > 2 minimum ticks, there is one exchange (nonUS) that would probably hit you up for very large fines for that stock movement. Really no joke. Caps can be reviewed by designated reps so if you hit one that you think is overly restrictive, give a call. That would mean the stock/future isn't trading because if it was, the reference price would very quickly adjust.
In any event, I think the issue in this thread is being overblown. While you can not opt out, I suspect most clients rarely come up against a cap and if they do and I think the caps have been designed to reflect market conditions real time (ie. rarely impact a client).
As an aside, the real way to get rid of such caps would be for exchanges or regulators to publish specific rules and criteria that we should either follow or better yet, have their own reference price calculation which would put all brokers on the same level playing field. Until this occurs (and I'm not optimistic), the onus is on the brokers who have to balance the cost of regulatory queries, fines vs commissions and client satisfaction. You've got to keep in mind we don't get paid unless you trade and hence have all great incentive to allowing your orders to go through.
i know my comments are overly simplistic but i'm just trying to give an overview. hopes his helps your understanding
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Good points def. We clients tend to miss the wood from the trees, ie we only take our needs into account when complaining/whining about a broker. But the broker has many clients, and so they have to take a collective approach.
Can't be easy for IB to manage all of this. Whatever the case, IB are still the best broker on the planet for me.
Can't be easy for IB to manage all of this. Whatever the case, IB are still the best broker on the planet for me.
I periodically run into these caps and they definitely cost me profits when I am unable to trade aggressively and am being "protected". I seek out situations where the value of a stock has changed a lot because of news or whatever, so I run into these more than many I expect. I would happily sign whatever made the IB lawyers happy if they would let me trade and take my chances with being wrong, the exchange busting the trade, etc. All of those have happened to me, but I would still rather be able to opt out. Calling to have the cap lifted is often not feasible in a fast market or in pre/after hours when a rep may not be available.
MoreLeverage, I have exactly the same issues with this
"I periodically run into these caps and they definitely cost me profits when I am unable to trade aggressively and am being "protected"."
and @def, I support the same solution
"Calling to have the cap lifted is often not feasible in a fast market"
"I agree the easiest thing, if they're worried about idiots using market orders or fat fingering limit prices, is to have an extra confirmation dialogue box to make it possible to override. "Your order is 20% below the prior close, are you really sure you want to so this?" "
"I periodically run into these caps and they definitely cost me profits when I am unable to trade aggressively and am being "protected"."
and @def, I support the same solution
"Calling to have the cap lifted is often not feasible in a fast market"
"I agree the easiest thing, if they're worried about idiots using market orders or fat fingering limit prices, is to have an extra confirmation dialogue box to make it possible to override. "Your order is 20% below the prior close, are you really sure you want to so this?" "
Unfortunately, def, my experiences with the caps have been different.
I remember that it has taken 15-20 mins for the price caps to reflect the current market price. I had to watch bids/asks and last prices moving higher and higher while IB's price caps lagged behind, effectively locking me out of the market.
It is very frustrating when you have painstakingly researched a stock and its latest earnings release, and then concluding that the opening price, while up substantially from the day before, would still give you a great price considering the earnings news - only to be prevented by IB's algorithm to buy at that price.
I agree that all brokers and the exchange itself should have the same rules when to force a cap. I have no issues against trading halts that affect everyone similarly.
What I do not understand however is that IB is capping my order while trades are clearly happening in real time at the exchange at prices far outside IB's price cap.
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If you've "painstakingly researched a stock" and like it, why aren't you on board before the report? Why chase the stock afterward, along with every other odd-lotter?
def
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If active trading is taking place, the updates should take place very quickly. Do keep in mind these are frequently reviewed and while I can't say for certain w/o specific details of a stock movement, your experience would be different now.