Using TOS paper trading I usually get filled in between the spread, Ib you're filled in the worst possible location. I talked to one of the IB reps and they said the paper trading platform isn't really good for anything but testing out how it works. The problem is I'm trying to figure out if I have a profitable strategy and the only thing I can trade with IB is the spy itself. I trade stocks for the most part but I'm finding it impossible to make decent profit with the fills. You can't use limit orders because they don't work unless they are hit on the ask. So my question is in real life if you're trading a 40 dollar stock with a 10-15 cent spread, what are the chances you're filled at the ask on a market order? Same thing with a smaller stock, some of the recent runners have had a 10 cent spread on a 2 dollar stock which is absolutely ridiculous. If you use limit orders how do you get filled before the trade gets away?
With IB paper trading, your limit orders are put at the end of the queue. So basically, they provide you with the worst scenario, which is good in a sense IMO. I'd rather test a strategy on with pessimistic scenario than an optimistic one. At least if your strategy is working on that type of paper trading environment then you have more chance it will work with a real account.
The reason TOS lets you fill between the bid/ask is for options trading. When trading options you would almost never use market orders but rather limit orders between the bid/ask. For liquid securities like SPY and ES you almost always fill longs at the ask and sells at the bid. Pessimistic fills are the most realistic. You can paper trade SPY like a god with TOS fills.
I my experience you are absolutely correct. But to make sure the OP understands correctly, it is in trading with limit orders and real money that you will mostly end up buying on the ask and selling on the bid. The TOS paper trade platform will fill limit buy orders on the bid and limit sell orders on the ask, giving you the advantage of the market maker , and two ticks more profit on all winning trades and two ticks less loss on all losing trades. It is then suddenly possible to make a killing scalping.. (on Paper). Something that is nearly impossible to do on the regular TOS platform. Where you get filled in real life is a matter of where your order sits in the order queue and how many market orders come in to be filled. Lets suppose you are trying to buy with a limit order. If you are early in the order queue and enough market sell orders are available to fill all those buy orders ahead of you plus your order you will get filled on the bid, otherwise you'll have to wait until the inside bid falls through your own bid and you get filled on the inside ask. This latter case is the usual one with the real money TOS platform. I have written TOS more than once about this and suggested it would be more realistic to have their paper trade fill engine fill resting buy orders on the inside ask and sell orders on the inside bid, but they never made the change. One way to compensate is to subtract two ticks profit from all round trip winning trades and add two ticks loss to all round trip losing trades. When I am trading in a situation where I normally would have a limit buy order fill on the ask and instead it fills when last drops right to my bid I know that there was a lot of market sell flowing in (because my orders are usually very late in the queue) . That worries me as it is usually an indication that I've got in on the wrong side. I'll start looking for an immediate exit. (The same thing can happen when sitting on a limit sell order and you get filled uncharacteristically on the ASK because there were a lot of market buy orders coming in.)
I have pictures of all of my trades from november to june and almost none of them have a spread of more than 4 cents I focus on how I execute trades and I think I'm usually pretty quick. Yesterday I was testing a scalp on a 3 dollar stock with a 15 cent spread on both platforms. I was basically buying the dip once the bid held for a second. on tos I was filled at 2.82 when the ask was 2.90 and the bid was 2.78. On interactive brokers I was filled at 2.92 and when the price moved to 3 dollars with the bid at 2.92 I made 10 cents with the TOS platform but made nothing with the interactive brokers platform. If i'm trading in real life would it be better to have a limit lined up in the middle to make sure I don't get filled at such a high price?
In real life, on a stock with a 2.78-2.90 market, there is no way you'll get a fill at 2.82 with a buy mkt order. You'd be filled at 2.90 or higher. This is trading 101. I don't understand which part you don't get. Many guys here posted reply saying basically the same thing. If you can make money with a paper account, then maybe you can make money with a real account. If you can't, chances are you will lose with real money.
I really like IB's paper trading account. I have run the same automated system both live and paper trading, at the same time, and get very similar results. It appears that IB simulates where you would be in the queue and takes the ask at the time when you would be filled. I have had less liquid securities take a while to fill, shorts take a while to find securities to borrow etc.