"Price Management Algo" -- just off the phone w/ IB, as I was wondering too ...
KEY: it's probably relevant only if you are trading over the counter or other relatively illiquid products.
At time of LMT order submit, if your limit level is outside the zone between the levels of the floor and ceiling of the market, market makers will often/typically cancel your order. You won't get filled.
The Price Management Algo estimates bounds of this zone when you submit an order to IB, and if your limit is outside the estimated zone, the Price Management Algo moves your limit order level to the estimated minimum level needed for your order not to be cancelled by the market maker(s). IB then submits your limit-adjusted order to the exchange.
e.g. if you submit a LMT LONG at 99 and then the Price Management Algo estimates a zone of 100 to 110, the algo will reset your limit level to the bottom of the estimated zone -- ie 100, to prevent market makers from cancelling your order.
So the trader who elects to use this feature is choosing to execute at a price not quite as good as the one speced in the LMT order, in favor of the priority of getting filled.
NB: the "Price Management Algo" is distinct from the "Price Improvement" algo at IB, which executes after the former algo.
When you enter an order, IB throws a pop up asking if you want to use this feature, and/or set it as a default for all orders. It's at the discretion of the trader whether to use this or not. As noted above, sounds like it's not particularly relevant if you trade highly liquid products.
The IB site docu on this is skeletal but in the opinion of the support person accurate; the above is transcribed from my call w/ the support person, in my opinion much clearer/useful than the IB docu.
KEY: it's probably relevant only if you are trading over the counter or other relatively illiquid products.
At time of LMT order submit, if your limit level is outside the zone between the levels of the floor and ceiling of the market, market makers will often/typically cancel your order. You won't get filled.
The Price Management Algo estimates bounds of this zone when you submit an order to IB, and if your limit is outside the estimated zone, the Price Management Algo moves your limit order level to the estimated minimum level needed for your order not to be cancelled by the market maker(s). IB then submits your limit-adjusted order to the exchange.
e.g. if you submit a LMT LONG at 99 and then the Price Management Algo estimates a zone of 100 to 110, the algo will reset your limit level to the bottom of the estimated zone -- ie 100, to prevent market makers from cancelling your order.
So the trader who elects to use this feature is choosing to execute at a price not quite as good as the one speced in the LMT order, in favor of the priority of getting filled.
NB: the "Price Management Algo" is distinct from the "Price Improvement" algo at IB, which executes after the former algo.
When you enter an order, IB throws a pop up asking if you want to use this feature, and/or set it as a default for all orders. It's at the discretion of the trader whether to use this or not. As noted above, sounds like it's not particularly relevant if you trade highly liquid products.
The IB site docu on this is skeletal but in the opinion of the support person accurate; the above is transcribed from my call w/ the support person, in my opinion much clearer/useful than the IB docu.
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