How to get first in line while invisible? (IB)

Discussion in 'Order Execution' started by Toonces, Sep 10, 2004.

  1. Toonces


    As far as I'm concerned, the whole point of using invisible ISLD orders is to get to the top of the order queue without anyone else 'pennying' ahead of least, that's how I use them. What invariably happens is, let's say I want to buy, and I don't want to pay the ask because the market is too thin...I put a bid ahead of ARCA with an invisile ISLD order...and the trade goes to the ARCA guy, who is bidding less than me! This happens to me pretty much EVERY single time I do this. This brings up some interesting questions

    First, don't other traders have intelligent routing systems, that will trade against my ISLD bid? Do they automatically route to ARCA, and assume that what's showing is the whole picture? Even so, what if another bid were to come in before their trade goes through (that's not ARCA), but higher than the ARCA order?

    Second, do hidden ISLD orders somehow lose precedence, even if they offer price improvement?

    Third, what are the other alternatives? I've tried discretionary orders, but IB always routes these to ISLD as well, so I'm still stuck. Maybe time to switch to another broker that uses discretionary ARCA orders...
  2. How does a broker's routing software know you are there if your order is hidden? Stepping ahead with a hidden order is only effective if you're stepping ahead of another ISLD order. You are hoping an order will be routed to an order already on ISLD that can be seen.

    Precendence within the queue at a given price is unchanged with a hidden order in my experience.
  3. alanm


    It would be nice if people would modify their auto-routers to be able to (optionally) send an IOC to INET before hitting/lifting a bid/offer that appears to be at the inside on ARCA or elsewhere. The user of the auto-router gives up 100-300ms in order to possibly gain price improvement, and hidden orders on INET become far more useful for liquidity providers.
  4. Toonces


    I assumed that auto routing looked to all routes, hidden or not. I'm guessing you're right, based on my experience.
  5. qazmax


    What you might want to try is using a reserve order on ARCA or INET. They can even vary the dispaly size so it does not look like the same order.

    The autorouter are simply looking for the best price and going there... you being invisible is not drawing any market attention.

    If Autorouters were perfect and speed was not an issue they would walk marketable buy orders up at every tick increment at every market place up to the offer to seek out orderfow in between the marks, such as discretionary orders and invisible orders. And it would test for reserve orders balances if an execution occured before going to a higher price level.

    To date, I do not know of a single autorouter that even attemps this. Or anything close to this.

  6. mskl


    I'm assuming that you are calling the automated equity traders "auto-routers" (like TMBR). If you are then your comment doesn't make much sense as these auto traders base their decisions solely on the bid/ask (sizes) and some other external factors like Index future premiums etc. These are the annoying traders that always join your bids/asks and this is precisely why other traders use reserve/hidden orders.

    Thus if these traders actually knew that "real market" on INET (ie a hidden bid) they probably would not be selling at that price but more likely joining your bid and raising their offer. In other words, if all orders in the markeplace were hidden, these auto traders would not exist.

    The bottom line is that sometimes hidden orders work and sometimes the market trades through them. I would also suggest using Reserve orders at times.
  7. Everyone, especially the MM's are wise to the hidden isld trick and play around it. Next to useless on most stocks, especially since you cant price in 1/10 cent anymore. One more edge gone.
  8. what would happen in the following example?:

    stock ABCD is showing an inside spread of 20.10 x 20.30, but there is a hidden order on INET to buy 100 shares at 20.20, and a seller submits a limit order on INET to sell 100 shares at 20.18

    at what price is the seller filled? is the seller price improved to 20.20 because of the hidden order, or does the seller get his specified price of 20.18 with the price improvement going to the hidden order?

    who gets the liquidity rebate? the seller thought he was providing liquidity because the inside bid is showing 20.10, but the hidden order was there first

    also, what other ECNs have hidden orders?
  9. Seller is filled at 20.20. Buyer gets the liquidity rebate because he has a resting order on the book. So the seller gets a price improvement but pays to remove liquidity. Seller still comes out ahead of where he expected.

    At IB, I believe only INET has hidden orders.

    FYI, reading the rest of this thread, my response from 2004 is incorrect. On INET visible orders jump ahead of hidden orders in the queue at a given price.
  10. BRUT on Cybertrader has Limit Invisible orders too.
    #10     Sep 9, 2006