I would like to use Interactive Brokers to set hidden stop orders for stock index futures. I found out that this feature is available on TWS. https://www.interactivebrokers.com/en/index.php?f=596 I am wondering if there are any downside to using this feature. If there are no downsides, wouldn't everyone be using hidden orders?
A stop itself isn't broadcast to the market participants, it's handled by the exchange until it's triggerd. At most it would trigger a limit order (if it's a stop limit) with a hidden *total* quantity but some kind of display quantity size is still needed. After the display quantity is consumed the next block of displayed quantity enters the *bottom* of the book for that price. Other than that the only other kind of hidden would be IB held stops which is off-exchange and at the mercy of IB.
Thanks for your answer. I read somewhere that stop orders sent to the exchange can be seen by market makers and market-making algorithms. So, off-exchange hidden orders would keep the visibility away from market makers. As you have highlighted, using off-exchange hidden orders expose us to the risk that IB systems fail to work just when we need it to save our skin. This is indeed a scary downside. I guess a good compromise would be to split between using both exchange stop orders and hidden stop orders.
Before you get too far along, you should find out what native order types and IB order types are offered. If your stop order of choice isn't available natively on the exchange you intend to trade, then an IB order type or a soft-stop are your choices. Interactive Brokers may simulate certain order types on its books and submit the order to the exchange when it becomes marketable. The IB website contains a page with exchange listings. The linked page for each exchange contains an expandable "Order Types" section, listing the order types submitted using that exchange's native order type and the order types that are simulated by IB for that exchange. See our Exchange Listings. https://www.interactivebrokers.com/en/?f=exchanges
In most cases, equities and options, stops are handled by your trading platform or your broker's server. Futures might be different.