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Trade Execution. Is it an even playing field?

Before you skip over this post as simplistic, please take a closer look.

Yesterday I learned of an experiment conducted by one of my readers. He chose two different iron condors – one in RUT and the other in NDX. Then he sent both orders to two different brokers. These were identical orders.

One broker was able to get an instantaneous fill on both.
The other generated a fill on only one of the orders, and that occurred two hours later.

I understand that everyone wants to know the names of the brokers – and I will probably share those eventually. But I do not want to create a problem with only one tiny bit of evidence.

Today, I’m asking whether this seems familiar. Have you ever tried to send identical order through two (or more) different brokers simultaneously? Even if you have not done this, have you tried to compare brokers and the quality of their executions? If yes, I’d appreciate hearing from you. Perhaps we can compile some data – even if it has not been collected scientifically, it should have merit.

We all know how important it is when choosing a broker for our options trading. Some choose the lowest cost broker. Others choose one with a friendly trading platform, good customer service, or outstanding risk management software. However, over and above each of these qualities, the major factor that should go into choosing any broker is the quality of their trade executions.

Unfortunately, that information is difficult to gather. Sure, the brokers advertise and make claims of how good their executions are, but this example from yesterday was a real stunner.

I don’t see how that result is possible. Aren’t the orders supposed to go to the same place? Or is this an example of what happens when one broker sends orders to the exchange that offers the largest bribe (excuse me, the official term is ‘payment for order flow’).

There was this explanation offered by the broker who was unable to quickly fill both orders: They said that the other broker took the other side of the customer’s trade. That’s another ‘wow’ for me. Do they take the other side when they like the trade – i.e., when the believe the customer is making a mistake? Do they take the other side for any new customer, just to make them believe that the broker offers great fills? Or was the first broker failing to tell the truth? And how would they know if the other broker traded with their customer, unless they often do (or did) that themselves.

This is a mystery worth solving. I don’t truly believe we can get to the ultimate truth, but perhaps there is enough evidence to learn of another ugly Wall Street truth: Hook the customers, then treat them as unimportant.

Please share your experiences.

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