When will Interactive Brokers give us a nice, clean OTO order type?

[topdrudge]

Def, thanks very much for weighing in. Your post speaks to the issue at hand: None of the orders you mention are worth squat. They are too specific and narrowly targeted ... or they don't work for non-SMART-routed orders, which is a 100% deal-killer for trading SPX spreads, which must be routed to CBOE as IB treats them very poorly when SMART routed ... or they work for outright option orders but not for spreads ... or we have to accept IB's idea for deltas and betas, which are frequently unacceptably wrong or at least in disagreement with the trader's desires ... or we have to accept IB's idea for the hedging contract, when we should be able to choose our own hedging contract.

The solution to all these problems seems clear and obvious: Simply give us a generic OTO order type.

BTW, I have an awesome app for trading option spreads and hedging exactly as I want to ... but it doesn't address the biggest issue of all, which is to have the hedge orders residing on the IB server in the event of a disconnect.

 

[topdrudge]

Def, if you are still there then can we please get a comment from Interactive Brokers directly addressing the question of whether or not providing a generic one-triggers-other attached order type in Trader Workstation and the API is a possibility? If there is some reason that this will never happen then I'm ready to shut up about it and pursue other ideas ...

 

[dst]

Def, Pete, anyone at IB: Can't you easily give us a nice, clean, simple, generic one-triggers-other order type?

That is, for any order I can attach any other child order that is submitted when the parent order is filled (for partial fills, quantity submitted in same proportion as quantity filled).
...

Hi topdrudge, apologies for delayed response (note you'll get your answer quicker if you were to contact your support team); def suggested using our pair trade feature earlier, let me give you an example - in the image below I created a direct-routed order for FB (could be SMART, this aspect does not matter), where for each share bought I will sell two shares of QQQ (also direct-routed); please let me know if this is not what you'd need. Here is the link to documentation for the Pair Trade.

This functionality was in place since 2009, API support for it was added in 2011.

 

[topdrudge]

Thanks for the response dst, I'm thrilled that we might be making progress here ... the problem with pair trades is that there is no TWS menu item to attach the pair trade for option combo orders ... so my questions is: Can we get you guys to "switch on" the pair trade feature for option combos (both SMART and direct routed)? Looks like it might solve the problem and I would jump on it right away and start testing.

 

[dst]

Thanks for the response dst, I'm thrilled that we might be making progress here ... the problem with pair trades is that there is no TWS menu item to attach the pair trade for option combo orders ... so my questions is: Can we get you guys to "switch on" the pair trade feature for option combos (both SMART and direct routed)? Looks like it might solve the problem and I would jump on it right away and start testing.

Not allowing to attach pair trade to a combo order is an oversight, which we corrected in TWS beta 9450u that was posted to our website few hours ago; can you please give it a try and let us know if all is working the way you'd expect?

Please keep in mind that we still don't allow to attach combo to a combo (you can only attach outright option or a stock, or alike), but we could correct that, please let me know if that's something you need. Thanks.

 

[topdrudge]

Sounds fantastic dst, thanks for the quick action ... unfortunately I have to use the standalone TWS and not browser-based; can you guys get the standalone download going soon?

In the meantime can you please answer three questions about pair trades (I checked the documentation and did not find answers there):

1.
Is the child order always, ALWAYS, for sure, FOR SURE handled on the IB servers and guaranteed to trigger as designed in the event of a TWS disconnect on my side?

2.
Can you provide the exact mathematical details of the hedge quantity algorithm ... that is, when I set a hedge ratio and IB bangs that against the parent order quantity, how is the resulting hedge quantity calculated (rounded, rounded up, truncated, other?). Please note that I am mainly thinking of index options hedged with futures, so frequently there is a significant risk management difference between hedging with N, N+1 or N-1 futures.

3.
In the spirit of question #2, can you provide the exact mathematical details of the partial fill algorithm? In particular, does it always maintain the original total hedge quantity, or does it throw away the original calculation and do new hedge quantity calculations for each pair (partial fill, remainder)?

 

[topdrudge]

Dst, I forgot to respond to the attach-combo-to-combo issue you raised. I would never want to use a market order for any option or option combo at any time for any reason, so in particular it doesn't bug me at all that I can't attach combos to combos.

 

[topdrudge]

Dst, while I'm waiting for the standalone TWS I'm coding and testing pair orders for outright options ... a few questions:

1.
TWS rounds the hedge ratio to 2 digits on the screen ... is it also rounding to 2 digits internally, and whatever the answer is, is the behavior identical for API orders?

2.
No matter what my hedge should be, I'm always seeing in TWS "estimated quantity 1" for futures hedges and "estimated quantity 100" for stock hedges ... this worries me greatly, what's up with this?

3.
Is the "estimated quantity" really "estimated"? Seems like it should be absolutely predictable and fixed for the initial order, and perhaps variable for partial fills depending on the partial fill algorithm.

4.
Since there is apparently no single-method capability for attached orders, I'm having to set these things up without transmitting until the attached hedge is defined and ready to go ... but I'm being forced to wait between 1 and 2 seconds after setting up the parent order before I can set up the attached order (trying too soon fails with error message that the parent order ID is not recognized) ... can't this be fixed so we can set up the whole order in real time?

5.
I'm able to set up and transmit same-sign hedges via the API (e.g., buying puts and buying futures to hedge), but this seems to be impossible when using TWS (there seems to be no way of changing the BUY/SELL action of the hedge order). Again this worries me: Why doesn't TWS function correctly, and can I be sure that the API orders WILL function correctly?

 

[dst]

Sounds fantastic dst, thanks for the quick action ... unfortunately I have to use the standalone TWS and not browser-based; can you guys get the standalone download going soon?

In the meantime can you please answer three questions about pair trades (I checked the documentation and did not find answers there):

1.
Is the child order always, ALWAYS, for sure, FOR SURE handled on the IB servers and guaranteed to trigger as designed in the event of a TWS disconnect on my side?

This is correct, orders are residing/updated by our servers; TWS is not involved here and does not have to be connected for them to be executed.

2.
Can you provide the exact mathematical details of the hedge quantity algorithm ... that is, when I set a hedge ratio and IB bangs that against the parent order quantity, how is the resulting hedge quantity calculated (rounded, rounded up, truncated, other?). Please note that I am mainly thinking of index options hedged with futures, so frequently there is a significant risk management difference between hedging with N, N+1 or N-1 futures.

3.
In the spirit of question #2, can you provide the exact mathematical details of the partial fill algorithm? In particular, does it always maintain the original total hedge quantity, or does it throw away the original calculation and do new hedge quantity calculations for each pair (partial fill, remainder)?

* We recalculate/update size of the pair order every time parent fills (even on partial trade) based on the size of the parent order traded up to that moment, so we do not accumulate rounding errors
* in other words: size_of_hedge = roundDown(ratio* total_parent_fill)

 

[dst]

Dst, while I'm waiting for the standalone TWS I'm coding and testing pair orders for outright options ... a few questions:

1.
TWS rounds the hedge ratio to 2 digits on the screen ... is it also rounding to 2 digits internally, and whatever the answer is, is the behavior identical for API orders?

In API, we trim the value to 8th decimal point.

2.
No matter what my hedge should be, I'm always seeing in TWS "estimated quantity 1" for futures hedges and "estimated quantity 100" for stock hedges ... this worries me greatly, what's up with this?

I don't see this problem, I'll PM you my email - can you please send me screenshot of what you see?

3.
Is the "estimated quantity" really "estimated"? Seems like it should be absolutely predictable and fixed for the initial order, and perhaps variable for partial fills depending on the partial fill algorithm.

You are right, for fixed ratio hedge it is predictable, not so predicable for other hedges (e.g. same rendering logic us used for fx pair hedge)

4.
Since there is apparently no single-method capability for attached orders, I'm having to set these things up without transmitting until the attached hedge is defined and ready to go ... but I'm being forced to wait between 1 and 2 seconds after setting up the parent order before I can set up the attached order (trying too soon fails with error message that the parent order ID is not recognized) ... can't this be fixed so we can set up the whole order in real time?

This is a problem that only affects API in certain cases; we will correct.

5.
I'm able to set up and transmit same-sign hedges via the API (e.g., buying puts and buying futures to hedge), but this seems to be impossible when using TWS (there seems to be no way of changing the BUY/SELL action of the hedge order). Again this worries me: Why doesn't TWS function correctly, and can I be sure that the API orders WILL function correctly?

No one asked for it; we will allow same side in TWS to be in line with what API allows.