IB´s website says the following: "Odd lot orders to open a new position or add to an existing position may not be routed to NYSE or Amex. SMART routing therefore will send these orders to other market centers (if these orders are routed directly to NYSE or Amex by the customer, they will be rejected by the IB system)." What is the practical impact of this on trading? If I´m dealing in stocks that trade at least 500K shares a day, will there be any disadvantage to not being able to get routed to NYSE or Amex?
The biggest advantage of trading with the specialist is guaranteed execution (..at a price). If you're trading odd lots, that shouldn't matter much.
The disadvantage is that you will have a tough time getting a fill unless you don't want one, in all but very liquid stocks. Usually, when the Island and ARCA orders are at the inside (where you can execute an odd-lot against them), the stock is going the other way. If you're swing-trading over days/weeks/months, it doesn't matter much. If you're trying to trade intraday, you'll have some trouble. Bottom line: Trade lower-priced (within reason) stocks, trade only the most liquid stocks (or perhaps NASDAQ only), or find enough dough to be able to trade round lots. You'll save yourself a lot of heartache.
Only IB can answer for sure, but usually it is dictated by exchange policy. BTW, am I correct that an odd lot is only quantity less than 100? A quantity such as 101 is not subject to odd lot rules?
There are odd lot abuse rules on the NYSE, Amex, and even ARCAEx. In order to comply with these odd lot abuse rules, IB chooses to take a simple approach and prevent odd lot routing to these destinations (unless you are closing a position).
Yes, odd-lots are less than 100 shares (for almost all stocks, BRK.a being an exception). An non-round-lot that is >= one round lot (i.e. 101+ shares for most stocks) is called a "mixed-lot".
Sorry, I should´ve been more specific...I´m talking about IB´s odd lot policy on swing trading with limit orders. I have a swing trading strategy that I´d like to test live, but I don´t want to put up the some $50K that I´d need to comfortably trade round lots. The strategy only looks at stocks that average 500K shares a day, NASDAQ, NYSE, and AMEX. Since I plan on using limit orders, the prices I´ll get shouldn´t be a problem...I´m just wondering if I´m going to have a lot harder time getting filled than if I were using round lots. Anyone know if getting filled will be a problem? Thanks!
I can't remember if marketable odd lot limit orders are eligible for routing to the NYSE. If you read IB's section on odd lot orders, it implies that they are not eligible. If this is the case, then I think you will find that if prices touch your limit price on a chart, you won't necessarily get filled. If the price penetrates your limit price, someone will eventually take you (since I believe your order will be waiting to be taken on an ECN). So I think you won't be getting great fills.
There may still be an issue with this. INET (f/k/a Island @ www.inetats.com) and/or ARCA (@ www.tradearca.com) may cancel resting orders once the primary market (i.e. NYSE or AMEX) crosses them, perhaps by some amount between 0 and 3 cents. You'll want to dig a little on their site and/or ask them for the details.