Execution and Market System

[Nevermind 12]

Hi, I am still trying to learn and can't get my head around a couple of question. I would appreciate any help.

 

• does anyone know of a good source on how option orders are matched?
• Is there a spread order book?
• Does option order matching works the same as for stocks?
• How comes different brokers have different fills?

 

For SO execution seems critical and I want to understand more about market makers and how the match our orders.

 

 

Thank you

Edited March 20, 2015 by Nevermind

[Kim 7,513]

Take a look:

 

https://ibis.interactivebrokers.com/en/index.php?f=1685

 

Here are two key points:

 

• Unlike other smart routers, IB SmartRouting never routes and forgets about your order. It continuously evaluates fast changing market conditions and dynamically re-routes all or parts of your order seeking to achieve optimal execution and maximize your rebate.
• IB SmartRouting represents each leg of a spread order independently and enters each leg at the best possible venue.

And this is true, as I have seen more than once that one leg was filled at one exchange and the other leg at another exchange. I don't think other brokers do it. I know that TOS doesn't.

[Kim 7,513]

As a side note, execution is critical in any short term trading system. SO is no different. It's one thing when you buy a stock and intend to hold it few years, and another thing buying and selling within few days. The shorter the time frame, the more critical execution becomes.

 

Trading is a business. As in any business, prices are involved, and our profitability of success will always depend on our ability to get good fills. Every business revolves around this cost equation. If getting good prices was so easy, there wouldn't be any markets/any business...

[Nevermind 12]

Thank you very much Kim for the nice explanation. I just recognized that my fills aren't as bad as I thought. I usually looked at them including commissions in IB and therefore the price for calendars was typically much higher but you are posting them without commissions which makes sense. 

 

Could you may try to describe how do you execute? Like if you do an earnings calendar. Do you have a target price in mind and wait for the midquote to get close to the target price and then enter a limit or do you stick with a limit order and try to get this price. I know it can be hard to explain the process because typically lots of considerations can influence the way of execution like

• liquidity
• bid ask spread
• underlying move 
• ...

but I believe it would be helpful to the whole community. Maybe when we do a trade next time you could explain it in more details. 

 

 

Thank you very much

[Kim 7,513]

You are right, it's a lot of considerations. 

 

Usually I have my entry target price, which in most cases I specify in the discussion topic. Then I might place limit orders on several strikes and wait. Sometimes "playing" with the order helps - meaning cancelling the order and resubmitting it, changing 1-2 cents back and forward etc. Scaling in and out of positions helps as well.

 

Getting good fills is a process. It takes time to master, and nothing substitutes experience. I wasn't born with it, it took years of experience and hard work.

 

Some instruments are more difficult to trade than others, and when liquidity and fills are an issue, I don't trade it. 

[Nevermind 12]

Thank you for your nice explaination. BTW have you tried in IB instead of using LMT using REL+LMT? Not really sure what it does but I'll give it a try.

[mnoack123 0]

I've been paper trading this month on Optionsxpress Virtual trading platform mainly b/c IB doesn't let you do so until after you've set up and funded an account.  Does anyone have any insight on what I can expect with this platform as far as execution goes?  I've tried to play with it but can't get execution without feeling like I'm chasing it.   Will IB be much different than this platform as far as execution goes?

 

Thanks for your insight.

[Marco 221]

I always wondered why 'playing' with an order as you call it helps when you execute at IB.

I had cases where the order sat there for a minute without a fill and then I LOWER my bid by a couple of cents or so and instantly get a fill. So something must happen when you change or resubmit an order but not sure what exactly

[cip0234 0]

i can't speak for Optionsexpress as i have never used it

 

but i just started paper trading last month with my Optionshouse account and i feel like chasing all trades, i only get fills at ask or bid price and not anywhere near to mid, not sure if its same with real account too

 

but at opening bell i get weird fills way below market or way over market if i have GTC orders

 

i think we have to take a step ahead and open a TOS or IB account and fund it

 

then only we can actually trade ad get a feel for the strategies used here

[mnoack123 0]

I think you are right.  Have you decided on TOS or IB?  I opened an account with IB years ago then closed it.  It wasn't the best interface but I understand its one of the cheapest which really matters for this type of strategy.

[cip0234 0]

still have not decided, just paper trading for now

 

prefer IB to actually trade as it seems better for execution although consensus seems like its confusing and has huge learning curve

 

but they have 10k minimum and some data fees and no paper account without real account

 

just to paper trade i think TOS is better for now

[Marco 221]

i can't speak for Optionsexpress as i have never used it

but i just started paper trading last month with my Optionshouse account and i feel like chasing all trades, i only get fills at ask or bid price and not anywhere near to mid, not sure if its same with real account too

but at opening bell i get weird fills way below market or way over market if i have GTC orders

i think we have to take a step ahead and open a TOS or IB account and fund it

then only we can actually trade ad get a feel for the strategies used here

Paper accounts trade only on bid/offer as if you post a bid at mid price someone would have to hit you - how is that gonna happen with a virtual account...

You get a better feeling for trading if you trade 1 lots if commissions and account size allow for that.

Edited July 8, 2015 by Marco

[4tach 15]

Newbie here. Trading on IB (Interactive Brokers). I am learning to use the line charts to view the price movements on a calendar spread (and that is quite revealing) and after seeing one of these charts in a recent Kim post I was able to migrate from  my quote monitor screen to segue to the line chart.  These charts (IMO) do a lot to explain the Bid-Ask spreads that are on the primary quote monitor screens from which I usually place an order. Today I was watching the line charts to decide an optimal entry point and entered a trade (actually two of them but for small contract size of 2). The problem that I later ferreted out was that my chart was not updating so I used a 'stale'  entry point for the transaction (and was filled immediately). From hence I will always request a new chart before transmitting the bid. (I put this here so as to perhaps consort with another as to this so-called glitch and to share my pain in hopes another does not do as I have done.) I would like to know if anyone else has had this or similar dreadful little nightmare and if there are better remedies than calling for a fresh chart (I may have a slow data feed but other indicators suggest that the data stream is OK.)

Edited May 2, 2017 by 4tach
spelling error

[Paul 325]

12 minutes ago, 4tach said:

Newbie here. Trading on IB (Interactive Brokers). I am learning to use the line charts to view the price movements on a calendar spread (and that is quite revealing) and after seeing one of these charts in a recent Kim post I was able to migrate from  my quote monitor screen to segue to the line chart.  These charts (IMO) do a lot to explain the Bid-Ask spreads that are on the primary quote monitor screens from which I usually place an order. Today I was watching the line charts to decide an optimal entry point and entered a trade (actually two of them but for small contract size of 2). The problem that I later ferreted out was that my chart was not updating so I used a 'stale'  entry point for the transaction (and was filled immediately). From hence I will always request a new chart before transmitting the bid. (I put this here so as to perhaps consort with another as to this so-called glitch and to share my pain in hopes another does not do as I have done.) I would like to know if anyone else has had this or similar dreadful little nightmare and if there are better remedies than calling for a fresh chart (I may have a slow data feed but other indicators suggest that the data steam is OK.)

Don't know, I just use charts for general guidance at a quick glance