I think this was my point. All else is not equal. At least you knew what you were paying before. Now, it’s some convoluted game.
Besides, getting your orders routed to a high-frequency firm for your own “high-frequency” trades is a pretty bad strategy. Then, one doesn’t get paid interest on cash? It’s more complicated this way and you must measure more carefully to see if you’re better off.
Looks like Tradestation joined the fray - with some conditions.
We seem to be talking about Schwab a lot in this post so keeping it limited (to Schwab):
Payments for order flow disclosures: https://www.schwab.com/public/schwab/nn/legal_compliance/important_notices/order_routing.html
Order Price improvement: https://www.schwab.com/public/schwab/active_trader/trading_tools/execution_quality/retail_execution_quality_statistics
Schwab has stopped disclosing the price improvement for stocks other than the SP500.
-Jim
Relevant:
Source - Interactive Brokers 2018 Annual Report.
Comments:
Obviously, this letter needs to be taken with a grain of salt as he is biased in favor of IB.
Chaim,
I think the letter needs to be taken at face value. He just told you what happens at IB.
By that I mean, if you direct your order (with IB) to “Midprice Orders” you will be directed to some dark pool somewhere.
Otherwise, see rest of letter for how your order is routed. So, Midprice is good right? Well, your order may not be excuted quickly because there is no routing elsewhere when you select this option. You just have to hope the dark pool that they direct you to has enough orders on the other side to fill your order.
Ideally you would have a smart broker that does not need to be told you like Midprice and would also know that if there are not enough orders on the other side in the dark pool the order should be routed to other exchanges. Ideally, the smart broker would check more than one dark pool. This is not what you get at IB.
Of course, if you sit at monitor all day or script your own algo you can get smart routing (without payment for routing) through IB. Still, you ultimately know nothing about the dark pool he has chosen—including whether he takes payment for routing to that dark pool.
Thomas Peterffy has just told you what happens to your order at IB. Biased or not, it is not that good for IB.
-Jim
Chipper , thanks for sharing the letter . Peterffy is obviously subtly marketing his midpoint order types which are only available on IBKR Pro (not sure if he’s advocating for “pegged to midpoint” or simply midpoint). Nonetheless his insights are welcome and validate my general dislike for market orders or pegged orders. I suppose market orders are ok for big liquid names, but I still don’t like using them.
He also validates my belief that investors that follow strategies, and are not day-trading, should always use Limit orders and a little patience. What’s the rush to get filled immediately? Let the market volatility work for you instead of against you by chasing it! We are wrapping up some tweaks to our Automatic Limit Order system. It’s really powerful and easy to use. You can send 50 limit orders set to a “patient price” with a few clicks. Then you can change the ones that did not fill with more aggressive limits, or midpoint, just as easily and without ever typing a limit order by hand. Fills take longer of course, but eventually come around.
Currently the Automatic Limit Orders will only work well on Tradier, but we will soon allow you to manage accounts at other brokers. We’ll officially announce and demo it very soon. Stay tuned.
Marco,
While you are in there making changes, please think about doing a funari order.
Funari is a limit order that gets converted to a MOC order at the end of the day.
We’re trying to create a uniform interface to different brokers. Tradier does not have MOC . However most do I think, so we will support using it.
In any case we are planning our own customizable order management system based on limit orders. Design goals are ease of use and hands off (could be entered the day before for example). You will be able to rebalance an entire portfolio with custom order types like :
Marco,
This will work for me.
The key is to be “hands off” for the day.
I can set it up before the market opens, but I can’t reliably tend to it during the day.
IMHO, that is awesome for too many reasons to enumerate.
Thanks Walter: the only useful news I found on my internet browsing this AM.
Fact: P123 is the ONLY PLACE where you can get a complex algo with no commissions. See above for “Funari algo” that P123 will be offering as an example. Not just Funari but P123 will adjust the limit order throughout the day. I expect the judicious addition of more algos in the future
IB’s algos come with a HIGH commission for low-priced stocks. VWAP and percent of volume is the most complex algo that one can get without a commission outside of P123 (to the best of my knowledge).
Actually, IB does not offer Funari orders for most of us, even with a commission. As per the IB site regarding Funari orders: “This order type is only available for stock orders direct-routed to the Tokyo Stock Exchange.”
P123 has the best data with a highly usable (and effective) statistical learning method (sims, ranking, rank performance optimization). And now, better algos than IB. Uhhh….I mean the best anywhere (without a commission and/or kickbacks for routing).
-Jim
fwiw, I made my first trade today on Schwab since they went $0 commission, and it’s the first trade with them that left me wondering. I had a sell limit order placed well before the market opened with a limit placed below where I expected it to open . I got a price $0.05 worse than the stock’s open on the execution.
Stock was AQN, a NYSE listed security.
Limit to sell at $13.62 or better. (order was placed at 6:02am if it matters)
Stock opened at $13.75.
Trade executed at $13.70. Time stamp says 9:30am so it looks it executed at open like would be expected, but I can’t see a seconds field so I don’t know. I think I’ve always gotten the open price at Schwab on prior trades like this. I have a contact mail into them about the trade asking what I should’ve done to trade at the actual open price.
It was on 880 shares, so overall difference of the $0.05 between the open price and the executed price was about $44.
I guess overall I’m worried about slippage like this with commission-free trading. I hope this is an anomaly, or maybe there’s a different way I should’ve entered the order to participate in the open. My understanding is NYSE pools all buy/sell orders at the open for the clearing price and all involved should get the same execution price.
The day Fidelity announced 0 commissions I transferred all my accounts to them. I ran into a weird problem which is not very common. On the accounts which had my spouse’s name on them (our joint & spouse’s IRA), the transfer failed. After 3 long phone calls I found out that it was a case of name mismatch because Fidelity only stores first 12 characters of the first name which truncated my spouse’s name (13 characters). Fidelity wanted me to fill some forms and get them notarized so that they can transfer funds using truncated name. It is a little odd that in this age of cheap data storage they still have this limit. Every rep I talked to at Fidelity initially did not know about this. One of them even offered to fix the name but called back to say that it is not possible. I did not want to deal with hassle of having an account with a “wrong” name and spending my time to do additional paperwork every time to prove our identity. So I closed all my accounts. I have never had that issue with any other institution.
I’m watching my behavior and incentive changes in response to $0 commissions, and think the main impacts will be: