Interactive Brokers - Receives Payment for Order Flow or Not?

[hajimow]

No. I was actually wondering how you lost money on that trade when the contract price was unchanged. You lost a few bucks due to the higher commission. You paid $0.42 per contract to open the trade at CBOE, but $0.79 per contract to close it at BOX.

Was that a limit or market order that you used to close the 13 contracts?

This particular question is actually relevant to the topic of this thread. I will explain why in a future post.

I had two orders which I believed only one should go through (done this method numerous times I mean one order gets canceled after another order gets executed because of margin). But because of market action and maybe that I did not set my bids that right, both went through at the same time. I was expecting if one goes through and the other is still open, it should be canceled because of margin problem. Since both went through exactly at the same time, the second order that you noticed was actually a liquidation. So the second order that had higher commission was a market order set by IB.

 

[rmorse]

Auto-liquidation by online brokers are one reason active options traders choose to move to another type of relationship.

 

[InfoTech]

I had two orders which I believed only one should go through (done this method numerous times I mean one order gets canceled after another order gets executed because of margin).

Something doesn't sound right.

No way would a broker send out an order unless the account had enough margin to cover the order if it were executed.

If this is the case, then you may have discovered (and are exploiting) a bug in IB's pre-trade risk control software.

 

[i960]

Something doesn't sound right.

No way would a broker send out an order unless the account had enough margin to cover the order if it were executed.

If this is the case, then you may have discovered (and are exploiting) a bug in IB's pre-trade risk control software.

If I'm not mistaken IB allows this but will cancel the other order if the first one gets filled and there's not enough margin for the second. It's possible, though unlikely, to get filled on both at the same time as they'd be sitting at an exchange.

 

[InfoTech]

If I'm not mistaken IB allows this but will cancel the other order if the first one gets filled and there's not enough margin for the second. It's possible, though unlikely, to get filled on both at the same time as they'd be sitting at an exchange.

Wouldn't that be considered "chase and cancel" functionality, and therefore prohibited under Rule 15c3-5?

See question #16 on this FAQ:
https://www.sec.gov/divisions/marketreg/faq-15c-5-risk-management-controls-bd.htm

 

[rmorse]

NeoTrader,

Some how, as with many threads, this has gotten off track. I can't speak for IB, so I'll speak in general terms. With regard to equity orders that are full DMA, where you can route your orders, you have the expectation that those orders will not travel first though an equity dark pool. With most "smart" or "managed" routes, if they offer to not charge ECN fees, you can assume that those orders are sent through an equity dark pool. It will be hard to tell if those orders ever make it to an ECN, or stay in the dark pool. The order sent to these dark pools offer PFOF.

DEF claims that their equity orders don't do this. Even if that is not true, I'm not sure how you will be harmed by this if your order does make it to an ECN, which IB equity orders do. Only order held in the dark pool are not subject to being executed by other public orders, only reg-NMS protects you.It makes it harder to buy on the bid or sell on the offer while in the dark pool.

Options orders are treated in a very different way, because some exchanges promote PFOF, but your question was about equity orders.

What is your concern about PFOF?

 

[volpunter]

That should hardly be going practice in terms of approach to trading. You are basically begging for trouble and that has nothing to do with IB. In fact in case I understand correctly what you described what you did should not even be possible. With IB you can only have unfilled open orders at the same time if they both satisfy your account balance or margin requirements. If your available equity only satisfies requirements for one order then you should not even be able to submit the second order. But if you could submit both orders then that means both orders can get filled and your account balance satisfies the aggregate requirement. If you now get indeed filled on both orders then IB would not liquidate you on a long options position.

But I concur with the other user...you are diverting from the points made here.

I had two orders which I believed only one should go through (done this method numerous times I mean one order gets canceled after another order gets executed because of margin). But because of market action and maybe that I did not set my bids that right, both went through at the same time. I was expecting if one goes through and the other is still open, it should be canceled because of margin problem. Since both went through exactly at the same time, the second order that you noticed was actually a liquidation. So the second order that had higher commission was a market order set by IB.

 

[volpunter]

What? That is with all due respect an irrelevant generalization. I appreciate auto liquidation by IB because it makes sure over leveraged gamblers do not threaten firm wide liquidity provisions and that makes IB a safer place to park my funds.

Auto-liquidation by online brokers are one reason active options traders choose to move to another type of relationship.

 

[volpunter]

Love your posts. One of the few who knows what he is talking about.

Something doesn't sound right.

No way would a broker send out an order unless the account had enough margin to cover the order if it were executed.

If this is the case, then you may have discovered (and are exploiting) a bug in IB's pre-trade risk control software.

 

[volpunter]

IB most definitely does not allow that. Try it out for yourself. IB takes into account already submitted orders when it does the pre trade risk check.

If I'm not mistaken IB allows this but will cancel the other order if the first one gets filled and there's not enough margin for the second. It's possible, though unlikely, to get filled on both at the same time as they'd be sitting at an exchange.