It would not hurt to have a little more information about IB’s tiered model.
I would love to be proven wrong and therefore learn something new and potentially important to my trading.
But these disclosures are not meant to be clear and what is left out of the disclosure is the most important. They do include this (leaving out some details):
That makes clear that they may not be passing all of the rebates to you.
Not only do they not make clear what “some” means but NONE OF THIS CAN BE COPIED FROM THEIR WEB SITE. They do not want me to copy the full details here. I retyped the quotes (without errors I hope)
However, it goes on to say that: " IBKR may receive enhanced payments for exceeding volume thresholds on particular markets but will not directly pass these enhancements on to clients."
I take this to mean that they receive payment for order flow that they do not pass on to clients—if IB gives them enough business (“exceed volume thresholds”). This would land a physician in jail, and I think, is not allowed in many countries’ stock exchanges. Elizabeth Warren wants to change this. That much is clear.
Furthermore, it seems to be that IB and whomever they are contracting with have a large amount of leeway as to how they structure those payments and rebates. There is no way for us to know the magnitude of this.
So, we really do not have much information on this—as intended. I understand this is far from the final word on this.
Link or disclaimer that IB is required to make by law: https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=3074
I have just 3 questions (true questions that I do not know the full answers to}:
How does this compare to Fidelity with regard to order price improvement or rebates of IB’s payments for order flow?
If IB is better than Fidelity because they rebate some payments for order flow does this adequately compensate for the commissions at IB?
And which tier do you have to be in to break-even or do better at IB? And for which type of orders? And is it possible to get reliable numbers for comparison?
One final note. It is getting harder and harder to get hard numbers on order-price-improvement. But when I checked, IB did not compare well to Fidelity or to Schwab. THIS WAS FOR MARKETABLE ORDERS WHICH YOU MAY NOT EVEN USE. I would appreciate it if anyone could post any recent numbers on this. Maybe I was wrong at the time or maybe this has changed.
I do have the belief that the order-price-improvement for market orders at IB is not as good as Fidelity’s price-improvement and that is before you figure-in the cost of the commissions. Market orders may not be important to you. But your analysis of VWAP orders at IB suggests that IB may not be the best place for every market order (or for VWAP orders). Something I agree with.
Anyway, it is just arithmetic and I am alway happy to have better numbers with which to update my assessments. Simon, for now your excellent assessment on VWAP at IB tells me most of what I need to know for my trading. But everyone trades differently and I am willing to learn new ways.