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Interactive Brokers transaction cost analysis, RelativeOrder, exchange rebates, market data

Hiya - I am starting to look at transaction costs prior to going live with some algos that trade 3-4 times a day, in small amounts, and wondering if anyone has already done this sort of analysis.

Basically, in the Tiered Commission structure, is it worthwhile to try to provide liquidity, even for small/odd lots? My strategies are not particularly time sensitive, so resting an order somewhere with the RelativeOrder would probably make sense, if the commission savings are greater than the cost of the market data required to run RelativeOrder.

I can't seem to switch my IB paper account to Tiered simulation, so I won't know my exact costs until I start trading real money, but if anyone has trod this path already, any insight would be appreciated.

Thanks,

Simon.

4 responses

Yeah, providing liquidity is generally a good idea w/ the tiered commissions. RelativeOrder is probably the best way (or VWAP, which mostly passively executes but Quantopian has a bug related to the VWAP order type). Let me note though that when you passively rest orders, the real cost isn't the data (that's tiny) but rather, the optionality of execution. For example, suppose you're trying to buy and the market runs up -- there's a chance that you won't buy until the price is much higher than at submission time.

IB has a great transaction cost analysis report which can help you analyse this once you start trading live.

I've just noticed the following restriction in the Tiered Commission structure details page:

"Please note that directed API orders cannot use the Tiered fee structure. Smart-routed API orders can use either the Tiered or Fixed structure."

Is this something we should worry about?

I haven't been using directed orders, I don't much believe in IEX and Quantopian is not the place to try and do custom smart routing. The only thing I can imagine that might be nice is native island bbo peg orders...?

Yeah, you probably do not need directed orders and Q does not support them except for IEX anyway. The IB smart routing is very good in any case, much better than the other brokers like Ameritrade , Robin Hood, etc who sell your order flow.