Brokerages & Trading Tools

[mershaw2001]

what do you consider small trades? i thought that if the number of shares was less than 1000 it was relatively hard to front run that. I thought most of the front running happens when mutual funds buy big.

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Yes, but unless you are doing small trades the 'commission' is just a very small proportion of the money they make off your trades. They could let you trade 'for free forever' and your actual cost would still be very high for each trade...read that Flash Boys book...it's entertaining as well.

what do you consider small trades? i thought that if the number of shares was less than 1000 it was relatively hard to front run that. I thought most of the front running happens when mutual funds buy big.

 

[TSLAopt]

what do you consider small trades? i thought that if the number of shares was less than 1000 it was relatively hard to front run that. I thought most of the front running happens when mutual funds buy big.

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what do you consider small trades? i thought that if the number of shares was less than 1000 it was relatively hard to front run that. I thought most of the front running happens when mutual funds buy big.

Well the HFT firms (e.g. citadel, Knight, Susquehanna) pay all the retail e-brokers (e.g. Fidelity/Schwab/TD/Etrade) for all the 'flow' on a per share basis...therefore the larger orders the e-brokers make more money. If they are getting paid 1-2 pennies per share then submitting an order for 200 shares would just net them $2-$4 in revenue from the HFT firms and the $9.95 ticket charge the e-broker is upfront about would become a larger portion of their revenue for that 200 share order.

so if you are a larger account and doing orders for thousands of shares then this $9.95 upfront ticket charge becomes a much smaller portion of their revenue they generate on your orders and so they are fine giving that up and letting you think you are trading 'for free'...the only problem there is that smarter/sophisticated people start realizing 'wait a minute, don't you still need to make money off my business?' And then put it all together by reading books like 'Flash Boys' etc.

this is what that upstart RobinHood everyone is talking about is trying to do, is eliminate the ticket charge altogether and let people trade 'for free' by only collectng money from the orderflow which they sell to HFT firms....I suspect the execution quality will be horrid there and the small retail investor will truly get robbed on that from RobinHood. I actually think Robin Hood will never make it for other reasons though that don't relate to execution quality.

 

[Auzie]

Mershaw/ChickenLittle,
If you guys think they are 'free' please read "Flash boys" by Michael Lewis. around page 180 is where he cites some really juicy material on the online retail brokers and what they are doing with your 'free' orders. The larger the orders the more money they make selling it to HFTs and the worse avg price you get on a market order, or in the case of a limit order the more likely you will not get filled even if the market comes down to touch your limit price and then goes back up(that is a huge opportunity cost by the way if you think about it).

if you really want to drill down to what true 'transaction costs' are then please read/digest this letter sent to the SEC last month by the chairman/founder of Interactive Brokers:
https://www.interactivebrokers.com/download/execution_stats_comment_letter.pdf

if either of you are interested in learning more about what your true 'transaction costs' are or in opening an account with IB (even for testing) then please PM me your email address and I'll be happy to discuss.

TSLAopt, most likely HFTs are skimming from all the brokers. I do not know enough on the subject to be able to have a solution for myself, on how to protect from HFT skimming. Maybe the only way is to have limit orders and even that is limited protection.

In relation to choosing a good broker, if HFTs are skimming from all of them, then the brokers are on a level playing field in respect to HFTs and they compete on other comparative criteria. Am I missing something here, or is there something specific to IB that is worse than on other brokers platforms?

I think I read somewhere, maybe on TMC, that some traders, in search of the best platform, placed the same order simultaneously through few different brokers. IB returned the best execution and price, according to these traders. Imo such test is the only test that matters to me as long as there is not much we can do about skimming by HFT.

 

[TSLAopt]

TSLAopt, most likely HFTs are skimming from all the brokers. I do not know enough on the subject to be able to have a solution for myself, on how to protect from HFT skimming. Maybe the only way is to have limit orders and even that is limited protection.

In relation to choosing a good broker, if HFTs are skimming from all of them, then the brokers are on a level playing field in respect to HFTs and they compete on other comparative criteria. Am I missing something here, or is there something specific to IB that is worse than on other brokers platforms?

I think I read somewhere, maybe on TMC, that some traders, in search of the best platform, placed the same order simultaneously through few different brokers. IB returned the best execution and price, according to these traders. Imo such test is the only test that matters to me as long as there is not much we can do about skimming by HFT.

IB is the only honest and transparent broker out there not 'double dipping' on customer order flow. In other words, IB is the only broker that makes money on customers' orders solely on the upfront commission, all of the other brokers out there choose to make money by also selling the customer orderflow to 'Internalizers' (AKA high frequency tradings firms) as described in "Flash Boys".

the reason IB is the only honest/transparent broker is because of its very unique management structure. If you haven't read "Automate This" then read chapter 1 as it is pretty much a bio on how Interactive Brokers evolved and why it is very unique.

 

[willowspuppy]

I made the switch to IB from Merrill about a month ago, but I'm discovering that it takes 5 business days to move money into the account using an ACH transfer. Is this normal? I guess I got accustomed to being able to move money between my checking and brokerage accounts at BofA/Merrill pretty much instantly.

 

[TSLAopt]

I made the switch to IB from Merrill about a month ago, but I'm discovering that it takes 5 business days to move money into the account using an ACH transfer. Is this normal? I guess I got accustomed to being able to move money between my checking and brokerage accounts at BofA/Merrill pretty much instantly.

yes, for instantaneous movements of cash you should wire the funds. A wire in or out of IB is free from IB's perspective but the other broker/bank may or may not charge some fee to send or receive a wire.

 

[Auzie]

I made the switch to IB from Merrill about a month ago, but I'm discovering that it takes 5 business days to move money into the account using an ACH transfer. Is this normal? I guess I got accustomed to being able to move money between my checking and brokerage accounts at BofA/Merrill pretty much instantly.

ML and BoA are the same entity, that is why the transfer is instantaneous.

I use Bpay to transfer cash from Australian bank to IB account. It takes as long as any Bpay to come through, 2-3 days, depending on exact time of payment, do I catch business hours of IB, time zone differences etc.

 

[dalalsid]

I made the switch to IB from Merrill about a month ago, but I'm discovering that it takes 5 business days to move money into the account using an ACH transfer. Is this normal? I guess I got accustomed to being able to move money between my checking and brokerage accounts at BofA/Merrill pretty much instantly.

Well this is poor. Both scottrade and fidelity let me use funds transferred from BOA instantly to trade stocks even though the actual transfer takes 2 business days to complete.

 

[TSLAopt]

Well this is poor. Both scottrade and fidelity let me use funds transferred from BOA instantly to trade stocks even though the actual transfer takes 2 business days to complete.

So does IB if you send money into the IB account with a wire transfer.

 

[Auzie]

Well this is poor. Both scottrade and fidelity let me use funds transferred from BOA instantly to trade stocks even though the actual transfer takes 2 business days to complete.

So does IB if you send money into the IB account with a wire transfer.

Are you sure that trade is not on margin until cash transfer settles? I have a cash account and that is a real pain due to restrictions. Often I can not place good trades as previous trade has not settled, etc. If you guys have margin accounts than money transfer and settlement into account lag does not really matter that much.

 

[dalalsid]

Are you sure that trade is not on margin until cash transfer settles? I have a cash account and that is a real pain due to restrictions. Often I can not place good trades as previous trade has not settled, etc. If you guys have margin accounts than money transfer and settlement into account lag does not really matter that much.

It is not a wire transfer, just regular ACH and not margin either (at least at Scottrade).

 

[TSLAopt]

It is not a wire transfer, just regular ACH and not margin either (at least at Scottrade).

Strange as I have a bank acct with the two of the biggest US banks (B of A and Chase) and whenever I do an ACH transfer involving those accounts in or out anywhere there is also always a 2-3 business day hold until the transfer goes through.

in any case, any large transfers of money are typically done via wire which is instant and free at IB both in and out...I think most banks brokers limit 50k as the max you can transfer via ACH.

 

[dalalsid]

Strange as I have a bank acct with the two of the biggest US banks (B of A and Chase) and whenever I do an ACH transfer involving those accounts in or out anywhere there is also always a 2-3 business day hold until the transfer goes through.

in any case, any large transfers of money are typically done via wire which is instant and free at IB both in and out...I think most banks brokers limit 50k as the max you can transfer via ACH.

Transfers between my checking accts take 2-3 days. But transfers to Scottrade let me use the money to trade instantly before the actual transaction has completed. There is no easy transfer out from Scottrade though.

 

[chickensevil]

I still have yet to open a fidelity account (call me lazy), but it appears that OptionsHouse is merging with TradeMonster which they are basically giving us access to TradeMonster for free! So on the positive side I think I might be able to avoid opening a fidelity account after all if the new platform is as good as their website is trying to suggest.

I think what kept me pushed away from Fidelity is that they have a decent rise in fees if I were to try to actually make it my trading platform. And besides, who needs charting tools when you have access to the best TSLA website out there!

 

[Auzie]

Transfers between my checking accts take 2-3 days. But transfers to Scottrade let me use the money to trade instantly before the actual transaction has completed. There is no easy transfer out from Scottrade though.

That would be very useful to me, the ability to trade on unsettled transactions. I do not have that, quite a pain. On the other side, transferring money in and out of my IB account is very easy and quick, no limits or restrictions apart from having to wait for settlement to complete.

It would be helpful to compile a spreadsheet of various brokerage accounts and list all these features for easy comparison, so we can all chip in with our info on various accounts. Good account is quite relevant if one wishes to make money in it :smile:

I might do it one day, but I do hope someone beats me to it.

I am curious about the fees that people pay for various market data and for trading. IB charges $15/month for level 2 on Nasdaq, and similar for other markets, $1.5/month for level 1 per market.

 

[chickensevil]

Well this might be a good starting place

I am not sure what they are basing their ratings on the "cost" category on, since I think there is a lot of dynamics that go into that one that might change depending on the individual investor. I don't have a very large account so can't take advantage of the lower commissions for having a higher volume of trades... but that would be different for someone else who does make those decisions. Or margin costs... or other subscription costs. For example, if cost wasn't a factor in anyone's decision we would all be rocking Bloomberg terminals which cost like 20k a year! But I do like the rest of the category ratings since I think they are very helpful in letting you find a decent balance between cost and functionality.

For those using OptionsHouse note that thanks to the merger we are essentially getting the best of both platforms by them picking up the trademonster platform but keep all the costs the same.

 

[TSLAopt]

True cost is not just commissions or ticket charges, but really is the execution quality. Reading "Flash Boys" should help anyone understand that. If you have read "Flash Boys" then it is important to know Interactive Brokers is the only broker out there that will let you route all of your orders to IEX if you wanted to at no extra cost. No other broker would let you route all of your orders to IEX as they would be losing money on their payment for orderflow business where as Interactive Brokers is the only broker out there that doesn't engage in this.

Anyone who understands the mechanics of trading should read this letter submitted to the SEC on Aug 1st
https://www.interactivebrokers.com/download/execution_stats_comment_letter.pdf

no other broker would want to publish this simple statistic because it would expose them to how much they are truly making off of their clients.

if you read and digest and understand the logic for that stats in the above letter then this press release is the latest stats as of the end of Oct showing that the all in cost for making a trade using IB is less than 1 basis point
Interactive Brokers Group Reports Brokerage Metrics for October 2014, Includes Reg.-NMS Execution Statistics - Yahoo Finance

i would love to see the SEC make other brokers publish this same stat

some people say "well a limit order is a limit order no matter what broker I put it with" and this is not true, I'd be happy to go through a specific example of how you can get screwed with your limit order because of the payment for orderflow business all of the brokers are engaged in (think 'opportunity cost' of not getting filled at the bottom price of a stock vs. getting filled at your limit price at the bottom for what would then be a great trade)

 

[chickensevil]

Oh and they have another nifty chart based on what you want to get out of a trading platform:

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True cost is not just commissions or ticket charges, but really is the execution quality. Reading "Flash Boys" should help anyone understand that. If you have read "Flash Boys" then it is important to know Interactive Brokers is the only broker out there that will let you route all of your orders to IEX if you wanted to at no extra cost. No other broker would let you route all of your orders to IEX as they would be losing money on their payment for orderflow business where as Interactive Brokers is the only broker out there that doesn't engage in this.

Anyone who understands the mechanics of trading should read this letter submitted to the SEC on Aug 1st
https://www.interactivebrokers.com/download/execution_stats_comment_letter.pdf

no other broker would want to publish this simple statistic because it would expose them to how much they are truly making off of their clients.

if you read and digest and understand the logic for that stats in the above letter then this press release is the latest stats as of the end of Oct showing that the all in cost for making a trade using IB is less than 1 basis point
Interactive Brokers Group Reports Brokerage Metrics for October 2014, Includes Reg.-NMS Execution Statistics - Yahoo Finance

i would love to see the SEC make other brokers publish this same stat

some people say "well a limit order is a limit order no matter what broker I put it with" and this is not true, I'd be happy to go through a specific example of how you can get screwed with your limit order because of the payment for orderflow business all of the brokers are engaged in (think 'opportunity cost' of not getting filled at the bottom price of a stock vs. getting filled at your limit price at the bottom for what would then be a great trade)

While I don't dispute this, you would have to somehow come up with a method of figuring out how much money you are "losing" by using, for example TOS vs IB based on how they screw you over on the routing in order to get an idea of if it would actually be profitable to start paying more for the more expensive service. (using TOS as an example only, I don't know enough about either to say definitively that one is more or less expensive than another)

For me, and the peanuts I trade, I cannot see myself justifying a higher commission for the *chance* that I don't get screwed over on a limit/market order by a few pennies. Especially when most all of my contract order sizes are normally <5 at one go.

 

[TSLAopt]

Oh and they have another nifty chart based on what you want to get out of a trading platform:
View attachment 63552

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While I don't dispute this, you would have to somehow come up with a method of figuring out how much money you are "losing" by using, for example TOS vs IB based on how they screw you over on the routing in order to get an idea of if it would actually be profitable to start paying more for the more expensive service. (using TOS as an example only, I don't know enough about either to say definitively that one is more or less expensive than another)

For me, and the peanuts I trade, I cannot see myself justifying a higher commission for the *chance* that I don't get screwed over on a limit/market order by a few pennies. Especially when most all of my contract order sizes are normally <5 at one go.

please read carefully and digest the logic for the stat in the SEC letter linki gave above and you will find your solution on how to easily compare all in cost, the first time I read it, it took me 20-30 minutes to really let the steps outlined in that letter sink in where the light bulb went off and then it made perfect sense.

 

[Auzie]

please read carefully and digest the logic for the stat in the SEC letter linki gave above and you will find your solution on how to easily compare all in cost, the first time I read it, it took me 20-30 minutes to really let the steps outlined in that letter sink in where the light bulb went off and then it made perfect sense.

Thanks for posting. As usual, the devil is in the detail

I will devote my upcoming sunny weekend to attempts at understanding the details of that letter.

I must be doomed, actually looking forward to spending my sunny weekend in paradise trying to understand the devil in the detail