I've been having a lot of issues with my spreads not getting limit filled at market prices with OptionsHouse. I suspect they're sending all my orders to the exchanges with the largest rebates (and therefore the least probability of finding a counterparty to my trades), i.e. BATS. I've been thinking about moving my funds to either Tradestation or Interactive Brokers. Which is better for order execution, and should I be considering another broker? I appreciate your recs.
You just suspect "they're sending all my orders to the exchanges with the largest rebates"? That is quite humorous. All you have to do is read OptionsHouse's SEC 606 order routing report to see that not one options order is sent directly to an exchange. Every options order is sold to a third party. Interactive Brokers is the obvious choice for serious options traders. IB sents options orders to 8 different exchanges. Read the SEC 606 order routing report for every broker you use or consider using.
so I see Citadel and Citigroup are the primary third partys for option order flow. whatever they're doing with the order, I don't seem to be getting good fills. are those third parties allowed to find counterparties or do they send the order directly to the exchange?
re:"Interactive Brokers is the obvious choice for serious options traders. IB sents options orders to 8 different exchanges." IB only has some advantages - their analytics and ability to do multi leg orders is only fair at best. to say they are the obvious choice considering all the other brokers is a bit of an exaggeration. all the option brokerages have their upside and downside. I personally, for example have accounts at TOS and Trademonster, though neither are "perfect"
I've been using Trademonster for about 6 months, I'm very happy with them. I came over from TOS. I feel I'm getting good fills and a better commission structure than I had before. Those are the only 2 I've used, so can't compare to other companies
The subject of the thread is "Best firm for options order execution?" Show us the brokerage firms with better SEC 606 order routing reports for options than IB. TOS only shows option routing to 6 exchanges. They don't have NYSE ARCA (7.0% of IB's orders) and BOX (5.4% of IB's orders). tradeMonster sells all the option order flow to 4 third parties. As a multiyear IB customer I know they are far from perfect. I just don't see any another brokerage firm doing a better job for traders. Like many others I would like to see other brokerage firms really try to compete with IB. I only see real competition with IB with futures brokers.
Those third parties are paying for the order flow, so they are looking first to see how they can make money off of your orders. If they can't make money directly then the orders are parked at whatever exchange works best for them.
IB is one of the largest HFT's for options (through their Timber Hill, which, until recently at least, was by far the largest source of the group's profits), and they reserve the right to trade against customer order flow at their discretion. The trouble with this is that the "best available price" isn't always clear, and furthermore the price the customer would get may be better this "the best available price" if it were sent to an exchange rather than internalized to Timber Hill. Beyond that, internalization worsens the BBO for everyone, not just IB customers.
It's been stated numerous times. IB does not internalize option orders. It will route to the venue where it can obtain the best available fill.
Timber Hill is the largest options market maker and not a HFT. Peterffy has complained multiple times about HFTs picking off Timber Hill's quotes and that Timber Hill might drop being a market maker in some of the worst HFT affected markets. IB's SEC 606 order routing reports for options makes it clear that all options orders are executed on an exchange. That IB/Timber Hill automated execution system is for stocks, not options. And that IB/Timber Hill automated execution system only did 2.5% of NASDAQ orders in the last quarter. You failed to answer the question of ""Best firm for options order execution?".