"Obviously, if you have to change your orders so frequently, either you don't know what you're doing or your system ain't robust. " I have to agree as well. As has been pointed out earlier, this isn't an issue so much with futures because the exchange itself will come after you vis-a-vis their message-to-fill ratio policy. Why can't you design your system to be passive until your strategy's price action levels are reached and then messaging becomes active right on the bid/ask spread? Does your strategy constantly bid and offer wide from the market in hopes of catching a market sweep? From IB's perspective, who's the better client - a retail swing trader who trades 5 times a day on 50 messages, or a retail trader with his own automation that trades 200 times a day on 300,000 messages per day? Clearly IB is making a business decision here, and if you don't like it then vote with your feet. My sense is that IB is a broker of 'last resort' for the automated retail types, because there's no way GS/RediPlus will allow that level of "wasted messaging" on their system. If anybody other than IB did, this would be a very short thread.
I agree with you for liquid markets. There is no point in quoting actively away from markets on those instruments. However, if you make markets on illiquid or semi liquid markets, you can be first bid/first ask all day long and still have a ratio a lot above 100/1. You have to change your spread with the most liquid correlated instrument( to avoid spreading opportunities ) and this is done constantly. Take an instrument that is really new, have no Lead Market Makers and have just a few prints per day. Open the DOM. There is someone quoting actively and he has no special privileges ( LMMs are exempted from exchange messaging rules ), so some firm must allow them to do so, right? Bottom line, I respect every exchange rules and I asked my other broker about it: they don't care as soon as I respect the exchange messaging rules. Bandwidth is not that expensive, but Timber Hill actively quote ( think message every 5 sec )1000s of options that don't have a single print per day. Where do you think the problem is?
Oh, they are all turds in my book. I actually went and opened an IB Professional account 2 years ago because Goldman Sachs made everything hard to borrow in terms of short sales on RediPlus, and they wouldn't approve my automation strategy either. And GS at the time had like almost 80% of their total equity trading volume going to their proprietary trading group if memory serves me correctly - so the logical conclusion was that they were hogging up even their own clientele shares for their internal use. Lime is owned by Tower, and Knight has a prop group, so the equities market brokerage business seems really seedy to me in terms of supporting any retail or institutional business that is a direct threat to their proprietary trading. Truth be told, I am having equity traders coming to me alot the past few months, and it seems the futures traders have a bit more of a level playing field strangely enough. The exchange rules seem a bit more fair, and many of the futures markets are still heavily populated with enough commercial and institutional clients to keep the gamers honest.
From the perspective of U.S. retail traders that's probably true, given the amount of competition, which has completely commoditized U.S. arbitrage spreads (made them resemble single-exchange contracts trading with constant interquartile ranges of the implied bid/ask spreads all day long, at least for the non-colocated trader). On the other hand, this may look different when you can afford - like Timber Hill does - the marginal reaction times (which are probably measured in 10's of microseconds these days). The firm for which I'm doing consluting (Freudian work, is an official MM in some European large-cap futures contract (which of course are illiquid by US standards, but their median bid/ask spread would be too tight for scalping and they are the most traded instrument locally). And he always quotes well away from the market, catching large liquidity-taking orders that cut deeply into the futures order book, before the other legs (basket of underlying stocks) have the time to react. As a result of his 'tick-by-tick' modifications reacting to price changes of multiple stocks (the more legs the more variable your implied price and your limit order), he is doing 20-30k modifications per day with only a few hundred fills (easily reaching messaging ratios in excess of 100:1). So this messaging ban introduced by IB at the 10:1 level (which would make his classic futures market-making strategy impossible), has a distinct smell of a conflict of interest caused by the common ownership of the broker and the market maker firms (at the strategy/zero sum level and not merely due to some 'unavoidable' competition for scarce resources such as exchange bandwidth - this is merely the official pretext given for the benefit of the regulator).
Well, the bottom line is the bottom line. There are thousands of IB clients here on ET; someone name a better alternative where everybody can message to their heart's content with a similar commission structure so they can move their accounts.
quote stuffing hits the bottom line. http://www.thestreet.com/story/10870265/2/quote-stuffing-hits-brokers-bottom-line.html
Greater complexity rarely leads to greater profits... So I have no sympathy for order spammers... The REAL intent is usually some form of market manipulation... Unless it's just plain system design incompetence. These idiots raise everyone's costs... And IB's 10:1 "suggested" ratio is reasonable. I signed my first Clearing Contract in 1998... And it included a $5/order charge for order spamming... Entirely at the discretion of the Clearing Firm... And this issue dates as far back as the 70s. Unlimited order spamming is not a "right"... There should be escalating charges above a certain level.
Update on this. Excerpt from my last messages to IB: "The order management cannot be reduced to recommended levels for this type of systems, so I will simply stop using the API. Please note that I never ever exceeded the EXCHANGE messaging benchmarks, trading only instruments that weren't subject to benchmarks or instruments that were subjects but only in the overnight session. You would have never heard of me from the exchanges.I understand I took a lot of IB bandwidth though... 2010/10/12 14:39:52 IBCS Dear x, Because IB provides superior technology, best price execution at the lowest possible trading cost we unfortunately do not have the luxury to offer unlimited bandwidth. We could consider charging a fee for such use, but senior management is not interested in pursuing this avenue of business. While most other brokers might consider offering unlimited bandwidth, IB unfortunately does not have room within its business model to support this. For this reason IB stresses that all customers manage their order management by introducing "no-waste" logic into their systems. Kind Regards, Interactive Brokers Customer Service"