IB fee - option smart order

Hello,

I did some option trades and using smart routing. It happened that some orderes were executed at CBOE, PSE, AMEX and I got always different fees. I think PSE was the cheapest exchange.
Is that normal that the fees are so much different?

 

Yes, each exchange has a different model. Some are free. Some charge for taking liquidity and provide a rebate for adding liquidity. On those exchanges, the rebate/fee can change from options trading in pennies to options that trade in nickels. Then they can also have symbols that offer higher rebates and fees. The model is confusing and difficult to follow. And, can change from month to month.

For our clients (that don't clear at IB), that use DMA and want to keep track of these fees/rebates, we can provide a monthly spreadsheet that sums it up.

 

Thanks for your reply!!
I'll have a look at your website

What exchange is the cheapest for eg. VXX options?

Thanks

 

Complicated. You need to check their websites for exceptions, but I believe Amex and Phlx are free for customer orders, if they are not re-routed. If you take an offer on these exchanges and the offer is there, it would be free. If you want to add liquidity, you might choose an exchange that pays you for that. On those exchanges, they might get less order flow because of cost. You have to weight likelyhood of execution with cost.

This would be easier to explain on the phone.

 

There are five different variations of smart orders on IB for option orders. Click on configure/smart routing in TWS. Then choose from smart, maximise rebate, prefer rebate, prefer fill, maximise fill. If you want to lower costs then choose maximise rebate and you costs will drop considerably. It is for when you are posting a bid or offer and IB send your order to the cheapest exchange.

 

Hello and thanks for the information!! I'll check the TWS for these settings and test it.

 

Paying less for exchange fees does not mean a better execution. If the stock moves enough against you, you will get a fill on any exchange. However if you want to buy on the bid, while others are still bidding, you have a better chance on exchanges that pay for customer Order flow, rather than one than one that will charge that firm for routing the order to that exchange.