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abuguapo

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

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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