No, IB does this with orders you have no desire to be hidden and that you fully intend to display to the world. It's yet another hidden "feature" of their system, in market that's moved significantly "the algorithm" will decide that the current public bid/ask prices aren't marketable and refuse to send your ordinary limit order, even if it's at the current bid/ask respectively, to the market until it, in it's infinite wisdom, decides that the current market prices are marketable. It's a ham handed attempt to stop orders that might later be busted, but frustrating as hell when you get caught by it, especially when you are trying to exit a position. I've seen it most often in some of the more obscure metals futures contracts (and no, they weren't limit up or down).
1) As to bolded part, in the case of an illiquid option listing, if NBBO is showing only market-maker's $1.00 x $2.00 spread, and I see another trader put in a Limit Bid of, say, 5 x $1.10, wouldn't submitting a Hidden Bid of 5 x $1.15 effectively allow me to sit ahead of him for a Seller, whereas if that were a visible Bid it might induce competing Bidder to go up to 5 x $1.20, etc? 2) Eh...actually, initially I wasn't quite sure what you'd meant by "no protection of trade-throughs", but...did I just effectively answer that? I.e. using my hypothetical numbers in #1 above (where I'm sitting with Hidden 10 x $1.15), what happens if a Seller: (i) puts in a 5 x $1.10 Limit Sell order? (ii) puts in a 5-lot Market Sell order? In either of those cases, if this is a non-native (aka held-by-IB-until-marketable) Hidden order, wouldn't it just immediately hit the other Bidder's visible 5 x $1.10 Bid (even tho I was sitting there hidden at 5 x $1.15)? Whereas if it were a Hidden Bid natively supported by the exchange, I'd get hit at 5 x $1.15, right?
Display Size = 0 will work very differently than Non-Zero Display Size, so these are different topics. When you mix them up you may not get clear answers. Also, orders for an option often work differently than orders for an option combo like spread, butterfly, etc. When you mix such topics than you really may not get any clear answers. Basically your question may not be answerable (or everyone will answer it to their liking) unless you unmix these different topics and focus on one thing at a time. Generally hidden orders in IB will change the display size to 0 and vice-versa. They are not related to orders with non-zero display size. Hidden orders with display size=0 are held by IB internally until the price calculated based on individual option prices becomes marketable. In case of option combos such orders will very rarely get filled unless you make the price very unfavorable to yourself - although once the order becomes marketable it gets sent to exchanges and may get filled at a better price than you've originally set.
I am not sure if DirectEdge still offers the below order types. If i remember correctly, they got fined before Bats acquired them for Hide not Slide orders for not properly defining them. http://cdn.batstrading.com/resources/membership/EDGE_Order_Type_Guide.pdf
When the order status goes blue its not a truly hidden order, its more like a stop limit order of sorts. It needs to be green to offer a lot of benefits to the trader(like potentially reducing adverse selection). In order to do that direct route (rather than using SMART) to places ARCA/ISLD/NDAQ/NYSE, that should do it
A true native hidden order is only active on the exchange where it is active, so other market participants can trade through your bid on other exchanges. I also believe a hidden order is assigned lower priority at the same limit price compared to a lit order.
There are 15 option exchanges. Held at IB or on an exchange, your order has no protection. If you want to give he a call this morning I can provide more details. I'm telling you that these orders are not in your best interest. Just that simple.
It does not. I did not know he was asking about options and in the past, posters choose the wrong forum more often than the right one. My bad.
There is also an issue with "hidden liquidity" on the option exchanges. Say Schwab has a routing deal with Sig. Sig displays a market of 1.02 X 1.05 20 X 20. Sig' real market 1:00 X 1:03 450 X 600 and it sits hidden on an exchange. Now an order comes in from Merrill to fill 20 contracts at 1.05. Sig has to fill 10 at 1.05 or better and can choose to fill anotmher 10 at 1:05 or better or ship then balance via linkage Same market - Schwab sends in and order for 200 contracts at 1.03 they fill under the preferenced liquidity rule. Generally these preference orders will be eithehr better size so little or nothing ships As Robert pointed out 15 venues and the are all linked. No dark pools, but there is dark liquidity. Generally the firm taking the most generous payments are participants in the "hidden liquidity" programs and not every broker has access to this hidden liquidity in options. Why would an MM offer a better market than what "they show" the industry? The assumption is that this "inside market" will bring more firms to it's Smart Router