Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

abuguapo

Does My Broker Pocket the Spread when I Take a Trade?

Recommended Posts

I use Interactive Brokers to trade stock index futures (specifically the emini Russell 2000..symbol TF in esignal).

 

I don't think I'm nuts (though if I am or not...I guess I'm not the one to say)...but here is the thing, for the longest time I chalked it up to being paranoid...risk adverse...a 'newbie'...'life in the markets' etc...but it seems I can't win but (seemingly) half the amount that I can (easily) lose.

 

I realize this is why you have to be discriminatory about when to enter...but on a more empirical...nuts and bolts...factual level...what I want to know is...is it possible that IB is netting the spread on every trade I take? (in addition to commission? My commission is nothing really...compared to the amounts I'm losing) Again and again...if I win (and say I win a decent amount) it's always a bit less than expected...and then if I lose...seemingly just several tics (say 3-5)...it's almost (ALWAYS) twice the amount expected.

 

So one or two two trades in a day might yield X amount (several hundred dollars)...but then price action contracts...I get in...price goes against you a couple of tics (honestly just several tics)...get out...and I've just lost a couple of hundred. "But it was just a couple of freaking tics" - I scream...(bird in tree outside: blink...blink)...I live alone no one is offended except me. :doh:

 

Seems to take a breakout to make a couple of hundred but a small scalp against my position (that gets me out because my stop is too close...blah blah blah) but the move has only moved against me 4-5 tics...and ouch...wtf...how can that have cost me so much?

 

It's obvious the odds seemed stacked against you (as a small newbie) except in the case that you catch a larger move and ride the consensus...otherwise you can be chumpbait for scalpers etc. BUT is there an equation baked into the formula of buying and selling from the brokers side (the trade exchange?) where they net the spread? I know this is done in forex...anyone know if they do so or are allowed to do so in a regulated market?

 

In regulated markets who decides what the spread (difference between bid and ask price) will be...and who is pocketing that amount (difference when you do take a trade/side) in the market? Anyone know...excuse the ignorance.

 

Best,

 

g

Share this post


Link to post
Share on other sites

No. They aren't. At least not normally, and not systematically. And not the IB you are a customer of in your transactions.

 

But your problem may explain why most of us enter with limit or stop limit orders. If you give away the spread then it is always going to be a cost of trading. If it was a bucket shop like oanda or fxcm then the spread goes to the shop. If its an ECN/Exchange trader like IB then the spread is between you and your counterpart when you enter the trade.

 

There is a chance that TimberHill might be the counterpart from time to time. In that case, yes, someone in the IB group of companies is the other person. TH and IB broking maintain chinese walls and the size of their broking business negates the speculations that one sees at ET that they would get enough from screwing little guys by breaking those walls to make it worth the loss of business if it was ever discovered.

 

What market do you trade where the spread is regulated. In every market I've ever traded with IB its a true exchange and the spread is determined by someone willing to sell to my buy or vice versa.

Share this post


Link to post
Share on other sites

I used IB. Don't know if this helps, but their data is not tick data, it's a combined or compressed data (I forgot the exact wording).

 

I did have two very strange trades occur with IB that never happened with other brokers.

 

I was in a losing ES trade, placed my sell stop below the market - the market came within one tick of the stop - it never went bid, but my stop was executed. I checked the time & sales, no record of a trade at my sell stop. Then I downloaded the CME data for that day. Yes the market traded within one tick, but again, the market did not trade at my stop price. No data for my trade. My trade was offset at the stop price with no record at the exchange. And yes, the daily statement showed my original sell stop price to offset.

 

This happened twice. Once in the ES and once in Crude Oil.

Share this post


Link to post
Share on other sites

If you think that happened (assuming it was recent) then contact IB by phone or web. They will go back to the time and sales and if there is a problem then you'll be fixed. But I'll bet that if you do it you'll find that the (real, full) time and sales includes a trade before yours that tripped the stop.

 

Also though with IB ... there are a lot of different ways to set up stop tripping so make sure you actually understand how you are set up.

Share this post


Link to post
Share on other sites

In regulated markets who decides what the spread (difference between bid and ask price) will be...and who is pocketing that amount (difference when you do take a trade/side) in the market? Anyone know...excuse the ignorance.

 

Best,

 

g

 

I agree with Spidey, but you have to check exactly what it is you are buying. Often with some brokers you are effectively spread betting or using a cfd and they will report the market prices.....the only way is to check. Sometimes, the type of account you have with the same institution might be slightly different as well.

Share this post


Link to post
Share on other sites

I'd look at your trade execution report too. It could be that you are using a market order rather than limit and due to feed or your connection latency, the market is not where you think it is when you place the trade. A market order will still fill you though at best possible price.

Share this post


Link to post
Share on other sites
If you think that happened (assuming it was recent) then contact IB by phone or web. They will go back to the time and sales and if there is a problem then you'll be fixed. But I'll bet that if you do it you'll find that the (real, full) time and sales includes a trade before yours that tripped the stop.

 

Also though with IB ... there are a lot of different ways to set up stop tripping so make sure you actually understand how you are set up.

 

Thanks SS, this happened in 2002 around there. I know the IB platform is a little tricky, but it was a simple stop order. I did call IB and they said it could have been a software issue.

 

Either way, we are responsible for any problems with the software or order placement, or even if MF Global chooses to drain our account and move out if the country.

Share this post


Link to post
Share on other sites

They pick the stop orders.No doubt about it. set an alert in emini even though it traded below my alert did not get triggered. My alert was set for a ask price say 1160 the market traded down to 1159.5 apparently there were no ask . That means the market was pushed down to pick the stops. Then the market was back at 1161. I try to set alerts then I look to see what the price action and then trade.

Share this post


Link to post
Share on other sites

s2prasad's post is interesting.

 

"They" are not defined. But I am one of "they" in that if I see a move toward stops and it doesn't move more than x beyond I will try to benefit. It's not the broker here, its your opportunistic trader(s).

 

This illustrates why IB have so many different ways of setting stops now (double tap etc). If your market does regularly show certain group behaviours then you may want to use non-standard stops. Either that or use a programmable platform like Sierra Chart to build complex off exchange/broker server rules for exit.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.


  • Topics

  • Posts

    • HLF Herbalife stock, watch for a bull flag breakout above 9.02 at https://stockconsultant.com/?HLF
    • Date: 1st April 2025.   Will Gold’s Rally Hold Strong as New Trade Tariffs Take Effect Tomorrow?   Gold continues to increase in value for a sixth consecutive day and is trading more than 17% higher in 2025. Amid fear of higher inflation, a recession and the tariffs war escalating investors continue to invest into Gold pushing demand higher. The trade policy from April 2nd onwards continues to be a key factor for the whole market. Can Gold maintain its upward trend? Trade Policy From Tomorrow Onwards Starting as soon as tomorrow, a 25% tariff will be imposed on all passenger cars imported into the United States. While this White House policy is anticipated to negatively affect European industrial performance, it will also lead to higher transportation and maintenance costs for everyday American taxpayers. The negative impact expected on both the EU and US is one of the reasons investors continue to buy Gold. Additionally, last month, President Donald Trump announced reciprocal sanctions against any trade partners that impose import restrictions on US goods. Furthermore, tariffs on products from Canada and the EU could increase even more if they attempt to coordinate a response. Overall, investors continue to worry that new trade barriers will prompt retaliatory measures, particularly from China, the Eurozone, and Japan. Any retaliation is likely to escalate the trade conflict and prompt another reaction from the US. Experts at Goldman Sachs and other investment banks warn that this will lead to rising inflation and unemployment. They also caution that it could effectively halt economic growth in the US.   XAUUSD 1-Hour Chart   The Weakness In The US Dollar Another factor which is allowing the price of XAUUSD to increase in value is the US Dollar which has been unable to maintain any bullish momentum. Despite last week’s Core PCE Price Index rising to its highest level since February 2024, the US Dollar has been unable to see any significant rise in value. Due to the US Dollar and Gold's inverse correlation, the price of Gold is benefiting from the Dollar weakness. Investors worry that new trade barriers will prompt retaliatory measures from China, the Eurozone, and Japan, potentially escalating the conflict. Experts at The Goldman Sachs Group Inc. believe that such actions by the US administration will drive rising inflation and unemployment while effectively halting economic growth in the country. Can Gold Maintain Momentum? When it comes to technical analysis, the price of Gold is not trading at a price where oscillators are indicating the instrument is overbought. The Relative Strength Index currently trades at 68.88, outside of the overbought area, since Gold’s price fell 0.65% during this morning’s session. However, even with this decline, the price still remains 0.40% higher than the day’s open price. In terms of fundamental analysis, there continues to be plenty of factors indicating the price could continue to rise. However, the price movement of the week will also partially depend on the employment data from the US. The US is due to release the JOLTS Job Vacancies for February this afternoon, the ADP Non-Farm Employment Change tomorrow, and the NFP Change and Unemployment Rate on Friday. If all data reads higher than expectations, investors may look to sell to lock in profits at the high price. Key Takeaway Points: Gold’s Rally Continues – Up 17% in 2025 as investors seek safety from inflation, recession fears, and trade tensions. Trade War Impact – New US tariffs and potential retaliation from China, the EU, and Japan drive uncertainty, boosting Gold demand. Weak US Dollar – The Dollar’s struggle supports Gold’s rise due to their inverse correlation. Gold’s Outlook – Uptrend may continue, but US jobs data could trigger profit-taking. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • Date: 31st March 2025.   Trump Confirms Tariffs on All Countries, Sending Stocks Lower.   The NASDAQ continues to trade lower due to the US confirming the latest tariffs will be on all countries. In addition to this, bearish volatility also is largely due to the higher inflation data from Friday. The NASDAQ declines to its lowest price since September 11th 2024. Core PCE Price Index - Inflation Increases Again! The PCE Price Index read 2.5% aligning with expert forecasts not triggering any alarm bells. However, the Core PCE Price Index rose from 0.3% to 0.4% MoM and from 2.7% to 2.8% YoY, signalling growing inflationary pressure. This increases the likelihood that the Federal Reserve will maintain elevated interest rates for an extended period. The NASDAQ fell 2.60% due to the higher inflation reading which is known to pressure the stock market due to pressure on consumer demand and a more hawkish Federal Reserve. Boston Fed President Susan Collins recently commented that tariffs could drive up inflation, though the long-term impact remains uncertain. She told journalists that a short-term spike is the most probable outcome but believes the current pause in monetary policy adjustments is appropriate given the prevailing uncertainties. Although, certain investment banks such as JP Morgan actually believe the Federal Reserve will be forced into cutting rates. This is due to expectations that the economy will struggle under the new trade policy. For example, JP Morgan expects the Federal Reserve to delay rate cuts but will quickly cut towards the end of 2025. Market Risk Appetite Takes a Hit! A big factor for the day is the drop in the risk appetite of investors. This can be seen from the VIX which is up almost 6%, Gold which is trading 1.30% higher and the Japanese Yen which is the day’s best performing currency. Most safe haven assets, bar the US Dollar, increase in value. It is also worth noting that all indices are decreasing in value during this morning's Asian session with the Nikkei225 and NASDAQ witnessing the strongest decline. Previously the stock market rose in value as investors heard rumours that tariffs would only be on certain countries. This bullish swing occurred between March 14th and 25th. Over the weekend, President Donald Trump indicated that the upcoming tariffs would apply to all countries, not just those with the largest trade imbalances with the US. NASDAQ - Technical Analysis In terms of technical analysis, the NASDAQ continues to obtain indications that sellers control the price action. The price opens on a bearish price gap measuring 0.30% and trades below all Moving Averages on all timeframes. The NASDAQ also trades below the VWAP and almost 100% of the most influential components (stocks) are declining in value.     The next significant support level is at $18,313, and the resistance level stands at $20,367.95. Key Takeaway Points: NASDAQ falls to its lowest since September 2024 as the US confirms tariffs on all countries, adding to inflation concerns. Core PCE inflation rises to 0.4% MoM and 2.8% YoY, increasing the likelihood of prolonged high interest rates. Investor risk appetite drops as VIX jumps 6%, gold gains 1.3%, and safe-haven assets outperform. NASDAQ shows strong bearish momentum, trading below key technical levels with support at $18,313 and resistance at $20,367.95. Always trade with strict risk management. Your capital is the single most important aspect of your trading business.   Please note that times displayed based on local time zone and are from time of writing this report.   Click HERE to access the full HFM Economic calendar.   Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding of how markets work. Click HERE to register for FREE!   Click HERE to READ more Market news.   Michalis Efthymiou HFMarkets   Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
    • PM Philip Morris stock, top of range breakout at https://stockconsultant.com/?PM
    • EXC Exelon stock, nice range breakout at https://stockconsultant.com/?EXC
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.