The Truth About PFOF in Canada

deaddog said:
We keep hearing about the evils of PFOF but what is the affect on the individual retail trader.
If I put in a limit order I get filled at my price or less.
If I put in a market order I get filled at the market price.
My experience has been somewhere between the bid and the ask.
If you are day trading in Canada you should probably be using IB or NBD
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It is a huge difference but in the opposite of how the news stories present the narrative.

I would never in a million years want to go back to the old days before all this came about. PFOF and Commission free trading is the greatest thing of my trading life.

I would say SLV is the least liquid instrument I trade but you put your limit orders in and they get filled, no problem. I swing about $15k a trade, maybe this would get to be a problem at more more money but I would just break things up across correlated instruments if that happened. On highly liquid equities and index etfs, it is delusional to think things use to be better.

The best advise I have read on here is from the other day, quoting Poor Charlie's Almanac to always invert.

In 2024, if you always invert it is rather comical to figure out that most things you see and hear aren't just wrong but backwards.
 
deaddog said:
How much difference does this really make to a retail trader? How much difference does it make on a trade of 1000 shares of a 20 dollar stock with a spread of one cent.
I can't see any difference on a limit order and depending on the volume moving, will it make that much difference on a market order?
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%%
USUALLY , no not much difference , in liquid-volume stocks + ETFs [Except in Bernie maddoff, i would not call specialists or market makers profits or payments ''evil'' LOL]
Almost always fine with SCHW or IBKR, penny or sub penny liquid stuff.
BUT even in super liquid stuff= i seldom use market order for entry;
could make a big difference, even more ,around Hi or low for day+ month .
Strictly day traders may have a different view :caution:
 
deaddog said:
Not sure what you mean by execution quality.
I'm looking at level 2, I enter a market order and get filled at or below the ask immediately.
I would assume my execution quality is good.
If my broker is being paid for order flow I don't seem to be affected.
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Price improvement over NBBO. Measure it and Measure it empiracally.

The anecdotal "aww shucks i checked my level 2 and assumed the fills were good" approach is not how it's done.
 
deaddog said:
How exactly do I do that?
Time and sales data? Same results as level 2. I can see my order being filled.
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When i ran a study, i used 1,000 executions and checked the NBBO at the time with a bloomberg terminal. I checked IBKR executions against Questrade executions to measure the difference.

The result was the IB has significant price improvement over PFOF ones.
 
Fain said:
When i ran a study, i used 1,000 executions and checked the NBBO at the time with a bloomberg terminal. I checked IBKR executions against Questrade executions to measure the difference.

The result was the IB has significant price improvement over PFOF ones.
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What is significant?
As a retail trader making trades in very liquid stocks using limit orders, how much is it going to cost me, buying 1000 shares of a $20 stock or 30 shares of a $700 stock?
Is the significant difference only with market orders and does it affect day traders more so than swing or position traders?
 
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