I've been experimenting for the first time with IB's Display Size field, which allows you to display a quantity smaller than your entire order size to the market, or hide it altogether. When I select a smaller quantity from the Display Size dropdown it works as expected (my bid/offer shows up on tape as a live quote, with my chosen size displayed), but when I choose "Hidden", IB's order status is dark blue, with note "Order is being held and monitored". IB tells me that the way their Hidden orders work is that they're held by the IB server, and not actually sent out to an exchange until the order is marketable (aka there's a live Offer at my hidden Bid, or vice versa). 1) Is this the standard way that Hidden orders are treated, or unique to IB? 2) i.e. Do exchanges even have the functionality to handle true hidden orders on the exchange side, or is it always going to have to be a broker-side process? 3) One result of this process, if I'm understanding correctly, is that there's no way for a Hidden Bid to ever hit a Hidden Offer, right? Because neither is actually ever sent out until there's a marketable counterpart, so if both are Hidden it's a stalemate(?)...or might IB match up hidden orders if they both happen to be IB clients (and so theoretically could transact without the orders ever being sent to the exchange)?
This is cool. https://www.sec.gov/marketstructure/datavis/ma_exchange_hiddenvolume.html#.XEETklxKiUk Nasdaq calls them NON-DISPLAY orders. https://www.nasdaqtrader.com/content/ProductsServices/Trading/OrderTypesG.pdf Orders are hidden from the marketplace. All incoming order flow can interact with hidden orders until hidden size is exhausted at the specified price. I do not recommend this order type.
Ha, that is cool Why do you say that? From what I've read while trying to research this, the protocol I described (all is handled on IB's side) in my OP is all that can really be done if the hidden order type is not available as a native order type at the exchange (right?) As I trade only options (hence the post in this sub), do any of the options exchanges offer hidden / iceberg as a native order type?
Why do you think you would bet a better execution not being represented in the NBBO and having no protection of trade throughs? At least an Iceberg order would show your price but not size. A hidden order makes no sense to me. For my orders, I want price discover and for all the players to see my order. I can understand wanting a 1000 lot to look like 10, but not zero. Especially with options. I just don't get it. For options, the NBBO can be 1.00 x 1.05 and you can bid 1.02 hidden and watch it trade at 1.00 all day.
This is correct. If you see that status, it’s being held at IB rather than live on the exchange. This could be because either that exchange doesn’t support hidden orders natively or because IB doesn’t support the native version.
Or they just hold it because in the infinite wisdom of "the algorithm" it isn't marketable, even if it's inside the current live bid/ask price.
Well it’s doing what you asked for - not showing your order until it can be filled. Whether or not that’s a recipe for good execution is up to the individual trader. If they couldn’t send a hidden order to the exchange and it wasn’t marketable, what do you want them to do with it? Holding it is really the only choice consistent with the instructions given by the trader. I haven’t seen IB hold orders when they can send them to the exchange, but I don’t know what exchanges or markets OP is referring to so I can’t be sure.
...I'm not quite sure I understand this; it's trading through your Bid, so surely it's "marketable"...? Or are you talking about in the case of the "simulated" Hidden order (held by IB), where it won't ever actually get sent to the exchange, because all IB sees on its side is a $1.05 Offer (and then executions at $1.00 on the tape but never, I suppose, an Offer at or below your $1.02 Bid...?) But surely in the case where the Hidden order is fully supported and handled natively by the Exchange, this wouldn't be the case (right?)
Well I'm typically SMART-routing my orders so...ah...I'm not exactly sure how that plays into the equation...like are there SOME options exchanges that natively support the Hidden order type and not others? And if so, how would a SMART-routed order deal with that inconsistency? (I mean, I guess that IB would just default to its internal / hold-until-marketable handling since there are fewer variables?)