Is IB IDPro a true ecn?

S

Shafii

I had an email sent to help@interactivebrokers.com concerning the subject, I got a reply which I wanted to share with the community for comments.

My original email:

"Shafii Mohammed" <***> wrote on 05/05/2006 07:32:11 AM:

***
I just need to clear one simple issue before I proceed further and open an account with you.
While I was doing my research for this purpose I've read (on elitetrader.com) and I quote: "Orders routed to the liquidity providers on idealpro need not be filled as they are not required to honour their quotes unlike a true ecn".
Can you please comment on this issue, is IDEALPRO a true ECN or not? Does liquidity providers on IDEALPRO have to honour their prices? especialy during news releases and times of high volatility.

Kind regards,
Shafii Mohammed

-------------------------------
From: help@interactivebrokers.com [mailto:help@interactivebrokers.com]
Sent: Saturday, December 24, 2005 7:58 PM
To: ***
Subject: Re: IDEALPRO question

Dear Trader,

We use several Interbank Forex Dealers who are connected to IB which provides market data quotes and liquidity in the market. As such, your order will be routed to one of these Interbank Forex Dealers for an execution. Your order is not routed to a central exchange. Due to the nature of the forex industry (i.e., unregulated), the Dealers are not required to process your order. If you have any further questions, please feel free to contact us again.

Regards,

Stan M
IB Customer Service
 
"Dear Trader,

We use several Interbank Forex Dealers who are connected to IB which provides market data quotes and liquidity in the market. As such, your order will be routed to one of these Interbank Forex Dealers for an execution. Your order is not routed to a central exchange. Due to the nature of the forex industry (i.e., unregulated), the Dealers are not required to process your order. If you have any further questions, please feel free to contact us again."

That's legal jargon. Yeah, they don't have to process your order, but believe me they will. It's how the dealers(MM and banks) make money. I've traded through news events (CPI, PPI, UNemployment) and haven't had any problems. Sometimes your order gets executed in parts by different liquidity providers. Sometimes it goes through all at once. But this happens instantaneously. It's not as if it takes seconds. It literally happens instantly.

Where as, if you opened an account with a market maker (MM), they really make an issue of "not having to process your trade." After all, they are trading against you. If the market conditions make it difficult for the MM to profit, you'll simply fail to get an execution or some bizarre one that you wouldn't have expected. Or worse, they'll set you on "manual trade." You'll have to call your trades in which gives the MM plenty of time to figure out their risk and how to profit.

IB doesn't do that. What you see is basically what you get.
 
Thanks ddunbar for your reply.
I'm already in the process of opening a new account with IB. I just wanted to get some feedback on this matter, to know what to expect.
I agree about all the advantages of ECN-brokers over MM-brokers like fxcm. ECN-brokers (like IB and HotSpotFX) will not trade against its own customers.

I wanted to hear from existing IB users like you if liquidity providers will honor their quotes. It seems that they do.
Also thanks for clarifying the execution speed issue.
One last question though, if we factor out IP/Internet latency issues, how fast is the market order execution speed? is it like under 100ms?
 
Quote from Shafii:

Thanks ddunbar for your reply.
I'm already in the process of opening a new account with IB. I just wanted to get some feedback on this matter, to know what to expect.
I agree about all the advantages of ECN-brokers over MM-brokers like fxcm. ECN-brokers (like IB and HotSpotFX) will not trade against its own customers.

I wanted to hear from existing IB users like you if liquidity providers will honor their quotes. It seems that they do.
Also thanks for clarifying the execution speed issue.
One last question though, if we factor out IP/Internet latency issues, how fast is the market order execution speed? is it like under 100ms?
More...

I've experienced on occasion when the banks do not honour the quotes but that's all part and parcel of trading when the markets are highly volatile and unwilling to push through orders of > 5m.

I have quite a fast connection and the general ping to the ib servers is about 60ms. I've never really logged the full roudn trip times
 
Quote from Shafii:

One last question though, if we factor out IP/Internet latency issues, how fast is the market order execution speed? is it like under 100ms?
More...

Hard to say. All FOREX orders are simulated by IB and it appears that all of my executions seem instant. I assume IB uses either a T1 or T3 to their liquidity so latency would be an issue.

If you're looking to scalp, you will have no problem at all. EVen if you scalp using the book trader. Executions are instant.

Now, you could from time to time get a late fill report from one of the liquidity providers. But I haven't had that problem. That might arise if you attempt to cancel an order that was marketable at the time of your cancellation request. Say, cancelling a limit order the very second in becomes elected. It would be a freak thing because as I said, executions tend to be instant. At the latest, figure 2 seconds.

Another thing to bear in mind is your size. Sometimes if the market is dancing around your limit and your size is large, the order might get broken up by several liquidity providers. But this whole process happens within a second or at most 2. If it's a market order, it occurs instantly. Though the prices received when averaged may come out to be a pip or two more than the price you saw when you hit transmit market order.

In the end, I have no material complaints. Most of my limit orders receive fills that are better than the limit. IB allows you to play inside the spread. And that's where parts of my limit orders get filled at. Not all the time and not the whole quantity inside the spread. But when my entire fill order comes back (instantly) I see that my average is less than my limit.
 
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