He says in his question he uses TWS, not the API. Probably you know him from some API post and you just assume he uses the API, not TWS. So if you are so smart do you also have an answer to the question from your API friend? Your nice little timber hill era story was below par. The answer (if OP actually means API) is quite obvious, but I'm done with this thread.
You're right, it's much more likely that OP is a retard who doesn't know he's on fixed commissions instead of tiered. Occam's razor, right? Especially after he pointed you to the fine text about the API. /s LOL. If the answer is obvious then just post it. This should be good.
Adding some color in attempt at avoiding this thread going down the rabbit hole. 1. If you route via TWS - there are no extra charges to route to a specific exchange. If you are on tiered, maker/taker exchange fees/rebates will vary by exchange. 2. If you use the API, there is a fee. Note, there is a misconception from the previous page of this thread. Timber Hill never traded against IB client order flow. This has been rehashed so many times I find it hard to believe some of you think it was the case. If they did, you could argue we may have chosen to stay in the market making business in the states. The fee was put in place many years ago for a number of reasons. One of which is there is a cost to routing to an exchange - bandwidth, fees, and increased surveillance costs, etc by clients who utilize APIs making it preferable for us to route via SMART.
The observable fact is that IB is not interested in serving clients who want to direct route. There is a class of strategies that require it, and because of these fees they simply cannot be traded at IB. So those traders go elsewhere. The reasoning for IB to leave part of a market that could be profitable for them, we can only speculate. Which is all I was doing with my Timber Hill theory. Another theory - and this seems to match pretty well what you are saying - is that IB just doesn't have their technology/infrastructure up to the level that would be required. The per-order processing costs are too high on their antiquated systems to be profitable with the kinds of order-to-execution ratios those clients would generate.
You are free to speculate but your speculation above is way off. With equity capital of $8 billion we could easily compete in the HFT space. I can't fault the decision to focus solely on the brokerage given the success we've had. You most certainly have no idea how much we invest in infrastructure and certainly don't have a full understanding of why we stopped market making. I will not provide details but I do know we have the resources and do keep our infrastructure state of the art. I think a good example which shows the quality of our technology and infrastructure is this past March when trades doubled to nearly 2 million per day in March. Also don't forget to include the number of orders, cancellation and modifications while significant portions of the workforce were forced to WFH before stating we have antiquated systems. IMO these numbers alone tell you a thing or two about the quality of our infrastructure and team of engineers. Don't forget there are not only direct exchange and bandwidth costs but there are huge regulatory, surveillance and other items to consider. We certainly can spend additional dollars to support any type of business we put our minds to but we do aim to be profitable and thus do not support every type of activity a trader desires. If you can make a business case, please do so. I suspect API direct routing has been hashed out a number of times over the years and the decision to not charge direct routing via TWS but add a surcharge to those doing it via the API has been well considered. We have great confidence in our SMART router and for most (and I understand not all), it is a win/win decision. Just to give you some idea on costs - I'll leave with some details in HK which I'm very much on top of as an example. Say you have a strategy that requires submission of 100 orders every 10 seconds and it is key for you to have those orders reach the exchange w/o delay (I.e. you blast them in all at once via an automated system). Exchange cost: each API/Throttle for stocks on SEHK delivers a whopping 2 transactions a second. So if we you are to place your orders w/o delay, a firm would need 50 throttles to service you (not including other clients). Cost per throttle - 50,000 HKD one time up front, plus 960 HKD per month or HKD2.5mm (~$322K USD) one time fee plus 48K HKD ($6.2K USD) per month. Do the math, what volumes do we need to accommodate your business? What if other clients join in and ramp up the orders to 200 per second or update every tick on the order book for a basket of stocks. One could easily purchase another 200 throttles to accommodate the orders but you'd be a fool to do it if the bulk of those orders weren't marketable and didn't cover the costs. That's just a small piece of the puzzle but as usual, there are many pieces of the puzzle to consider.
Def, I appreciate that you took the time to type out such a long reply. (Although I am not buying the SEKH example, obviously such costs need to be passthrough) I agree IB's systems scale fairly well to a high number of users. The fact that IB operated as-usual through the crisis while some other big brokers experienced failures certainly makes IB look good. Don't get me wrong, IB is a very good broker in many ways. I "grew up" as a trader on IB, I would still recommend IB to friends and family for their self directed investing, without reservations. All that said, I do stand by my description of IB's systems as antiquated. This is based on a lot of real world experience using the API and seeing all the weirdo issues that come up when you actually trade hundreds of stocks at once. I have spoken on the phone with IB's engineers quite a few times, and been very disturbed by what I've been told about how the systems work. In particular the risk checking system. Processing orders with low latency is just not something IB's systems are capable of currently. I am a bit sad that I've recently had to make the decision to leave IB in order to take my trading to the next level. So if you sense some frustration from me, it's out of love. I would've loved to stay with IB forever if they could support my trading.
This does not add up. I'm currently running another experiment using the SMART router vs. IEX and SMART struggles a lot. I'm unsure where the confidence stems from. Just yesterday I had a market order on SMART not execute any size for 15 seconds. IEX was working fine. SMART as a result cost me 16 cents slippage on a $34 stock, equal sizes. That is massive. Whatever "protection" is used on market orders did not work in this instance and never has for me. It often appears that the IB algos are applied based on theory and not practice. Protection is self-defeating if the fills are worse.
market orders put you at the end of queue with lower priority - use marketable limit orders, e.g. +- $1.00 on a $40 stock or +-$10 on amzn
IB actually has some extra "protection" in place for market orders, it's enabled by default (years ago you got a warning about it) and cannot be turned off. In time-critical orders I've sent limit orders that are far out of range, so I'm guaranteed immediate execution. It's the same as marketable-limit. I didn't however expect a 15 second delay on a liquid stock.