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Direct MessagesDate/Time: Thu, 25 Apr 2024 23:33:07 +0000
Post From: Stock Trading Plans ( Question for our Interactive Brokers Users)
| [2020-02-13 00:33:16] |
| User41727 - Posts: 124 |
|
A question we have for Interactive Brokers users, now that TD Ameritrade is commission free, would it make sense to be trading US stocks through Interactive Brokers when you can trade through Ameritrade for free?
Because "free" isn't really free. I'm not sure you understand the intricacies of equity order handling. Brokers like Robinhood, Alpaca, and now many others like TDA can only offer "free" trades by selling their customer's order flow to a variety of counter parties like HFTs. Obviously, these places would not pay for this order flow if they were not able to make more money from them than they are paying the broker. And that money ultimately comes out of the customer's pockets. One way this works is that while the buyers of said order flow are bound by Reg NMS, and thus have to execute the orders at the NBBO or better (for non-odd lot orders), there can be hidden liquidity that allows them to fill the orders at a better price than the NBBO. They then fill the customer's order at the NBBO, and pocket the spread. A proper broker like IB (non Lite) will try to find that hidden liquidity, and fill your order at that price. So, the customers are not paying commissions, but they are paying by receiving worse fills than they might otherwise be able to obtain. In the end, you are probably indirectly paying more with "free" trading than you would by dealing with a transparent broker where you are the customer and not the product. Commission free trading is nothing but a scam designed to screw over retail traders who don't understand order handling. The information about where the orders are routed can be found in the respective SEC rule 606 reports that brokers have to file. For instance, here is Robinhood's disclosure for Q4 2019: https://cdn.robinhood.com/assets/robinhood/legal/RHF%20SEC%20Rule%20606%20Report%20Disclosure%20-%20Q4%202019.pdf |