No fee order on IB
- Thread starter misterkel
- Start date
Check BOX Options Exchange (https://boxoptions.com/fee-schedule/). They have a pretty good fee schedule for spreads.
There's no free lunch. Every time you trade there is a marketplace operating that incurs expenses. If someone is offering free trades then they are running a strategy that simply hides their fees and their profits from you. It's always better to pay the fee, shop around and understand carefully the fee structure you are paying. That's called cutting out the middleman.
Your statement is far from the reality. For me the convenience that results from the firm receiving payment for order flow outweighs the possibility that routing the order to numerous venue and paying a commission before some potential benefits me over the time. I don't buy it.
If you know Wall Street you would not trust Wall Street to route your benefit.
Your intuition is understandable but several months ago I wrote software to test this. I did pay a measurable and significant amount more for PFOF orders.
The tests sent identical orders to TD and IB in separate execution threads so that they left my network within the same millisecond. TD is "free" and uses payment for order flow. At IB I used the default SmartRouter configuration and the tiered commission structure. All orders get routed directly to an exchange in that scenario.
Every order executed cheaper at IB. The difference was anywhere from a few dollars to $130 more expensive with the "free" trades at TD. If you don't like the SmartRouter at IB you can configure it and even send directed orders that bypass it and go directly to the exchange, but most will simply be sent to NASDAQ or NYSE.
The main thing you miss with PFOF is dark liquidity. You will find bids/offers inside NBBO at all the exchanges. There's a bunch of hidden orders plus all the partial lots that are not reported as part of NBBO.
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Thank you for sharing!
Did you do this using MKT orders at both TD and IB?
Was this done for US Equities?
My testing was done with US equities and marketable limit orders that filled immediately. Market orders entered on a retail trading platform by a customer frequently get converted to a marketable limit order by your broker as a means of limiting their risk. IB frequently simulates a market order by sending a marketable limit order to the exchange.
Your reply is based upon certain premises which are fiction in reality. The most obvious is that the rest of Wall Street is as honorable as IB and they are technologically on the same level IB, when it comes to routing orders. I don't trust Wall Street that the savings from their routing algos will result in a savings to me. Next I estimate that I would spend $200 to $ 400 in commissions daily at a commission firm. That means I start down $50,000 to $100000 on an annual basis. On top, psychologically, I cannot handle the situation, hoping that some clever routing is going to end up to my benefit.
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1) All my trades and order fills were real. Nothing was simulated.
2) I don't trust IB either, which is why I tested them.
3) If you don't like their smart router you can send directed orders to your favorite exchange. The cost savings is not so much a factor of their router as it is the dark liquidity you pick up inside NBBO and outside NBBO if you are taking liquidity.
4) "Psychologically" you don't have to use or trust IB or their order router. You just trust the objective testing of reality.
This isn't complicated. When you have a hypothesis you test it. That's the very foundation of science. Math, engineering and science have created far more wealth than Jedi mind tricks and unproven beliefs.
btw, it would be very appropriate for you to question my results. That's also what science does. In that event you would devise your own objective test with measurable results and see if you can get a repeatable result that proves me wrong.