Switching to lite

[GRULSTMRNN]

All that you mentioned does not apply if you route directly.

If you use IB Pro, your order is still exposed to Citadel, Virtu etc. using sub-pennying, co-location, faster cables between different exchange servers (as described in Flash Boys) etc. One of several ways we lose is due to market makers sub-pennying limit orders until the market moves, which they see faster than the rest of the market participants due to co-location and faster cables, after which they take your limit order leaving you with an execution that is already at a loss.

The question is: Will you lose more if your broker sells your order than you lose today. Possibly. Maybe because of increased latency. I'm not sure. Only testing will reveal that.

The fact that market markers are willing to pay for the order does not automatically mean you are better off using direct market access where no one pays for your order, because maybe they are willing to pay for your order to secure a profit that they otherwise would have had to compete with other market markers to secure. Other market makers that have access to the same advantages.

 

[GRULSTMRNN]

Even if you ultimately get filled at NBBO, it won't be the NBBO you see when you submit the order for market orders. Due to the delay caused by the sold order flow your order gets rerouted multiple times and may even sit in the dark pool of the flow purchaser before it gets filled somewhere it got rerouted to due to NBBO.

For limit orders the market will move away and you won't get filled nearly as often as an order which has not been sold to a hedge fund.

This isn't a challenge but a curiosity. If I'm hitting the bid or the ask, how am I going to get raped? Shouldn't IB be routing me to NBBO even if I'm on Lite? Or will it exile me to the hinterlands where liquidity is an issue? TIA

 

[R1234]

And of course what you plan on doing is not the most useless pursuit? You know that you don't have to try everything in life just to know for sure how something is like, right? We have an intellect and can use logic and deduction to inform ourselves. I don't need to open a lite account to know it will provide hugely inferior fills, most likely higher financing cost in the future too. But please go ahead, use your next few weeks to figure out how all I said works out in detail.

All I ask is don't be so opinionated all the time and have an open mind. I know there's a nice guy hiding in there somewhere. My findings may turn out to be useful or not but I plan to try it. I guarantee there will be a website or two popping up in the future comparing broker fills side-by-side now that it has become zero benchmarked.

 

[qlai]

My findings may turn out to be useful or not but I plan to try it.

I think it will be very useful! I wouldn't be surprised if Pro is not much better than Lite when SMART is used. Please share your findings.

 

[GRULSTMRNN]

I definitely welcome any fair and honest comparisons. I predict the outcomes already, but happy to stand corrected. As I said early on, the zero commission model probably works well for all kinds of investing, but trading...a different game.

All I ask is don't be so opinionated all the time and have an open mind. I know there's a nice guy hiding in there somewhere. My findings may turn out to be useful or not but I plan to try it. I guarantee there will be a website or two popping up in the future comparing broker fills side-by-side now that it has become zero benchmarked.

 

[GRULSTMRNN]

I predict otherwise. IB regularly publishes statistics, which are by the way audited, for its smart router, and fills regularly show price improvement. This is technically impossible for an order that has been sold to a market-making firm. I am not sure why this issue is even contentious. Brokers earn nothing from direct routes, hence they charge commission. They earn a lot from selling order flow. Hence they can reduce commissions to zero. For the end-user, the same story. A direct route will cause the least latency, meaning, the order hits the matching engine the earliest and hence the likelihood of execution at the price the trader sees on the screen is the highest with a direct route. This is science, not art, its just pure facts, not conjecture.

I think it will be very useful! I wouldn't be surprised if Pro is not much better than Lite when SMART is used. Please share your findings.

 

[vanzandt]

and fills regularly show price improvement. This is technically impossible for an order that has been sold to a market-making firm..

Schwab does it all the time. Price improvement that is. I have no idea how that stuff works, but I thought the general consensus here was that Schwab sells order flow.
Its seems like you'd be correct though. Maybe they adjust your order based on what they know then sell it. Who knows.

 

[GRULSTMRNN]

I would be interested in seeing Schwab's price improvement. Do they publish it? Could you point to a website? Thanks

Schwab does it all the time. Price improvement that is. I have no idea how that stuff works, but I thought the general consensus here was that Schwab sells order flow.
Its seems like you'd be correct though. Maybe they adjust your order based on what they know then sell it. Who knows.

 

[vanzandt]

I would be interested in seeing Schwab's price improvement. Do they publish it? Could you point to a website? Thanks

I don't know if this helps or not:

Here's another link:
https://tinyurl.com/y6crdc2t

 

[GRULSTMRNN]

Also, margin loan rate differences account approximately for a price improvement with IB of about 28 USD per day when trading 100,000 usd notional on margin each and every single day. How I came up with that number? Difference the margin loan rate between other brokers and IB, which is the annualized rate differential, divide by 250 trading days per year and multiply by 100k. Each trader can figure out for themselves whether they will trade stocks worth 28 dollars of commission with IB each single day. I doubt it, given that for a 200 dollar stock and 500 shares traded IB "only" charges around 2.42 USD in commission. That is 4.84 USD roundtrip, which uses aroundd 30k in margin. Hence 100k margin would scale the trading size and hence round trip commission up to 4.84 USD * 3.33 = 16 usd in commission. Still lower than 28 dollars. And that is the margin loan differential alone.

The calculation holds for anything that is held for a day or longer, and hold for most stocks priced above 100 dollars a share or more. For lower-priced stocks the margin loan rate advantage IB offers diminishes.

Also keep in mind, with IB you get paid around 1.8x percent for all unused cash. Not bad vs zero. Did I mention potentially more favorable stock loan rates (except certain situations where it really depends on each broker's inventory). I can't see a justification even for investors to switch over to a zero-commission model that does not offer the features IBPro offers.