Competing with fractional cent trades

Discussion in 'Order Execution' started by flbum, Sep 21, 2007.

  1. flbum


    I've been successfully scalping low liquidity stocks/ETFs (not penny stocks) with IB TWS for about a year and a half. I use Scottrade streamer to get my T&S info. I always have lots of non-marketable limit orders and am frequently on the inside of the advertised spreads. I lose a lot of liquidity to hidden orders which are a fraction of a cent inside my order. I see lots of executions occuring at these prices. Who are these traders and how can I compete with them? I get an error when I try to place fractional cent stock orders with IB TWS. Is there a method using my IB account or another broker who will let me place fractional cent hidden stock orders just inside the NBBO so that I'm more competitive?
  2. What you are seeing is "price improvement," not hidden

    You can't get around it directly, but a little thought and you
    will see that the price improvers can sometimes be gamed,
    especially if you use two seperate accounts.

    There was an article about this on Seeking Alpha a while
    back. Use the search facility there, I am sure you will find it.
  3. That is because Reg NMS prohibits sub-penny orders in
    stocks trading over one dollar. Try sub-pennies in a fifty
    cent stock and you should be able to enter your order
    in TWS.
  4. flbum


    Thanks Kevin. I found the article you referenced. It's right on target. You've provided a solution to my mystery and some food for thought. :)
  5. Could you post the url for the article. The one article I found talks about it but has nothing about 'gaming' the trade.
  6. pbj


    This may be the article.

    See the fourth comment:

    "Seems to me that you can take advantage of the specialist/market maker who steps in front of you buy a fractional penny. If it's allowed and your brokerage software does it, you would have your limit order canceled the second the order.00001 ahead of you was filled throught the ecn. A neat way to get a fractional penny strategist let you get out of a stock position in which you are trying to go the opposite way of his anticipated .0001 improved limit order. He thinks he outsmarting u but you are getting him to drive the market your way. The key is to have rapid cancel capability and reestablishment if his .00001 better order is taken out. Suddenly the sneaky devil has no support to layoff his risk after he's filled and feeling glorious. Looks like a way to bait the sneaky fish out there. It's about gaming the algorithmic strategies out there. This one is obvious because the optionality the fractional penny establishes is evident to all players of any sophistication. Needless to say, I don't recommend or employ anything like this due to the ethics involved and lack of legal expertise in the area."