Best Broker for Large Lot Swing Trading?

Discussion in 'Retail Brokers' started by solarballoon, Jan 9, 2012.

  1. I just opened an IB account for short-term trading. For longer holds, though, I'd like to take advantage of the flat-rates that some other brokers offer. I know these are generally lousy brokers, but doesn't it make sense to use them for 10,000-share limit orders that will be held for one week to a month?

    I know the order execution is far and away better at IB, but if I want to trade 20,000 shares of S, then my round trip is going to cost about $100 through IB. Whereas at some place like TradeKing, it would be only $10.

    So in these types of trades, who would you recommend using? Or does it really not matter?
  2. Are you adding liquidity? IB's rates go way down if you are getting the rebate under Cost Plus plan.
  3. Yes, I would be adding liquidity, but I don't think I'd be making all that many of these types of trades over the course of a year.

    For the sake of doing numbers, let's focus the discussion on Spring (S). It is currently trading at ~$2.20. Let's assume:

    I'm trading in 10,000-share lots
    Making limit orders and adding liquidity
    Making 2-round trips per month.

    TradeStation and Etrade offer flat-fee trades for $8. That's $32 for a month's trading, or $384 in trading fees for the year.

    At IB, I'm adding 40,000-shares of liquidity per month and I'm never trading above the 300,000 share limit to reduce the fee from .0035 to .002. Over the course of a year, I've traded 480,000 shares.

    480,000 * .0035 = $1680

    IB's pricing comparison page:

    I see that the NASDAQ rebate for adding 30,000,000 shares of adding liquidity is $66,000. That comes out to a rebate of .0022 per share.

    There are some fees involved with the transaction, so let's reduce the rebate to reflect that: $57,085.

    $57,085 / 30,000,000 shares = $.0019 / share (rebate)

    .0019 (rebate) * 480,000 (shares I traded over a year) = $912
    $1680 (IB commission for the year) - $912 (hypothetical rebate) = $768

    In this case, the flat-fee trading ($384 for the year) at the other brokers is still lower.

    Now let's assume that I'm also making lots of other trades over the course of a year; my short terms trades.

    Assuming that I am adding 1,000,000 shares of liquidity through shorter-term trades, my average commission per share drops to $.00206 per share (40,000 shares at .0035 and 960,000 shares at .002).

    Now the cost of trading those 480,000 shares at IB is $989. The rebate (minus fees) is still $912, so the adjusted cost of trading is:

    Assumption: the stated fees on the IB are in line with reality
    Assumption: I am doing enough volume to bring the average IB commission close to .002

    Conclusion: It is cheaper to use cost-plus with IB than flat-fee with either Etrade or TradeStation, even if I can get their flat-fee down to $5 (which is possible at Etrade).

    Any flaws in my arithmetic?
  4. I find it very hard to figure the exact effect of the rebates pre-trade, but that sounds about right.

    I'm also assuming that the fills would be better at IB over the two brokers you mentioned, so it would be worth it even if the commissions were the same. Honestly, at the trade sizes and frequency you're talking about doesn't amount to a difference of more than 1k/year, so I would choose based on features and fills rather than the commissions.
  5. If bad news hits and you want to exit fast, I'd think IB would be a lot faster than any of the other choices you mentions.
  6. Regarding IB's ability to fill: Any idea on what percentage of orders are filled by the dark pools they have access to? And why does the potential for price improvement over the NBBO matter if I'm making a limit order with a very liquid, high-volume stock?

    This doesn't question the value of IB over the other brokers I mentioned; I'll definitely be using IB. I'm just trying to get a better understanding of some of IB's stated advantages.