Interactive Brokers - Receives Payment for Order Flow or Not?

[volpunter]

Were you not the one who hijacked this thread and started talking about auto liquidation?

Regarding pfof of course is that a concern to an equity trader. Even with slight price improvement any first look delays the order from reaching a potentially more liquid market where the order could be executed faster.

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?

 

[i960]

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 and it already does that at the pre gateway level meaning the order does not even reach IB'S servers.

Yeah I'm probably confusing the specific context with another one. I'm pretty sure I've seen the situation where I've had an order disappear after having another one fill due to margin, but I'd have to recheck.

 

[hajimow]

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.

This case happens once in a blue moon (like twice a year for me). I don't call it a bug and actually I like it. I like to have two open orders and I do that because I see sometimes one contract seems not liquid and I put order on another similar option. Once one goes through the other one gets automatically canceled. If both go through in the same second, IB goes and liquidates me (which is absolutely fine with me).
I also use another trick not to pay option order cancelation fee. Let's say I have an order to sell 20 contracts at 0.2 and then the price drops and I am ready to sell at 0.18. I dont modify my order. I put another order at 0.18 cents and by doing this because of margin issue my 0.2 order gets canceled by IB and since I canceled my order and it was not me, I dont pay cancelation fee. Since I might do this many times (from 0.2 to 0.19 to 0.18 to 0.15) I enter new order and let IB cancel my old order.

 

[hajimow]

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.

Exactly. Look at my execution times. Exactly at the same second and 3 seconds later auto liquidation happened

 

[volpunter]

I strongly recommend you to overthink your approach because your "tricks" at best harm you financially and at worst if you discovered a bug or loophole land you in trouble with regulators or the exchange.

This case happens once in a blue moon (like twice a year for me). I don't call it a bug and actually I like it. I like to have two open orders and I do that because I see sometimes one contract seems not liquid and I put order on another similar option. Once one goes through the other one gets automatically canceled. If both go through in the same second, IB goes and liquidates me (which is absolutely fine with me).
I also use another trick not to pay option order cancelation fee. Let's say I have an order to sell 20 contracts at 0.2 and then the price drops and I am ready to sell at 0.18. I dont modify my order. I put another order at 0.18 cents and by doing this because of margin issue my 0.2 order gets canceled by IB and since I canceled my order and it was not me, I dont pay cancelation fee. Since I might do this many times (from 0.2 to 0.19 to 0.18 to 0.15) I enter new order and let IB cancel my old order.

 

[hajimow]

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

Auto liquidation does not happen only on option. It can happen on stocks, futures. One good feature of IB is auto liquidation. I love it. I let them control my account and put my ducks in order. I like a tough broker who follows rules and is not forgiving. In long term it is good for you. Please explain what "another type of relation" can do when because of a stupid mistake, you become out of margin.

 

[hajimow]

I strongly recommend you to overthink your approach because your "tricks" at best harm you financially and at worst if you discovered a bug or loophole land you in trouble with regulators or the exchange.

Please explain.

 

[volpunter]

Could you please be so kind as to keep this thread on topic? If you are interested in auto liquidation it would be good to start a new thread. I think I am not the only one who is really interested in hearing what Def of IB has to say about PFOF in regards to some of the follow-up questions or for that matter anyone who has something of value to add to the topic of PFOF.

Auto liquidation does not happen only on option. It can happen on stocks, futures. One good feature of IB is auto liquidation. I love it. I let them control my account and put my ducks in order. I like a tough broker who follows rules and is not forgiving. In long term it is good for you. Please explain what "another type of relation" can do when because of a stupid mistake, you become out of margin.

 

[hajimow]

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.

I wanted to say your statement is not right but you are right in a way but what I am telling you is based on my over 100+ times experience. So what I have seen so far is this:
If you put an order on option A and also an order on option B, IB allows that (even if you don't have margin to execute both) as it happened in my case but if you put an order on option A for x price and then put another order on the same option A for x+1 price, the most executable order will stay and the other one will be canceled by IB although none of then has been executed yet. As I said I have used this method to avoid self cancellation of the orders and let IB do it for me.

 

[hajimow]

Could you please be so kind as to keep this thread on topic? If you are interested in auto liquidation it would be good to start a new thread. I think I am not the only one who is really interested in hearing what Def of IB has to say about PFOF in regards to some of the follow-up questions or for that matter anyone who has something of value to add to the topic of PFOF.

Sorry. My last post. You are absolutely right.