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.



15 Responses to Trade Execution. Is it an even playing field?

  1. Darren 05/05/2011 at 6:43 AM #

    Yes! I’ve had issues where others with the same order as me were filled and I was not filled. This has happened on more than one occasion as I’ve tested this theory of an uneven playing field myself.

    I only trade the SPX so I can only speak to that vehicle. As far as I’m concerned, as a spread trader, execution is more important than commissions even though some feel the latter is more important.

    I’ll share the names of the brokers if needed/requested.

    • Mark D Wolfinger 05/05/2011 at 8:54 AM #

      Hello Darren,

      What I don’t know is when we get good or poor execution. Your examples suggest poor execution.

      Thanks for sharing

  2. davmp 05/05/2011 at 7:03 AM #

    Shouldn’t the broker that didn’t fill be able to check price history / trade history and see if there were any published bids/offers outstanding that could have crossed by the orders with the second broker? If not, wouldn’t the other broker have had to fill the trader’s order?

    But if there were, the unfilling broker would have to admit to either slow order placement with the exchange or not ever placing the trader’s order with the exchange that had those published bids/offers.

    Finally, there’s also the possibility that the trader’s size with the filling broker fully matched a published bid/offer leaving no size left for the unfilling broker. Though this doesn’t match up with what they claimed. 🙂

    • Mark D Wolfinger 05/05/2011 at 9:10 AM #

      Trade history doesn’t help.
      Price history is not really useful either – when it comes to spreads. few orders get filled by paying the offer and selling the bid.

      Here’s a piece of information. One time I called my broker and said that I wanted a fill. Just pay the offer and sell the bid and it’s better than my limit. They replied that it was a ‘fast’ market and they were unwilling to leg one side on one exchange and another leg on a different exchange. I don’t know how that restriction was programmed into the algorithm, but it obviously was. I canceled the order and made the trade myself. At prices better than my limit.

      The point is that we don’t know what it would take for a broker to buy on one exchange and sell on another. Price history doesn’t reveal that secret. And we must remember that some brokers refuse to route orders to the best NBBO. I don’t know how they can get away with that nonsense.

      NO. A broker only has to fill a customer’s order when it is traded through. And today, that is modified – I no longer am familiar with the details. If you bid $1 for an option, there was a time when it was not allowed to trade lower without filling your order. Apparently it is now allowed when the trade occurs via a spread. I don’t understand why, but I have seen enough times to know it is true.

      I do not believe a broker MUST fill an order just because the two legs are available simultaneously. The few microsecond delay may be too long for some broker’s algorithm to ‘take the chance’ that the second side will disappear. We are not privy to such information.

      No broker would admit not sending orders to the exchange immediately. They may delay, but would never admit it.

      As far as sending the order to the exchange displaying the quotes that allow for a fill, please remember that it is very unlikely that any exchange is ‘displaying’ quotes that would fill the order. For that to happen, our trader would have to be buying at the ask price. And both orders would have to be on the same exchange. We know that does not happen too often. And it did not happen in this case. The order was somewhere near the mid-points.

      I don’t believe size is an issue. My correspondent does not trade big size. However, if a public customer was on the other side of the trade not likely) then yes, size would be an issue.

      Thanks for the conversation

  3. Victor 05/05/2011 at 3:20 PM #

    I have had a tough time filling ICs in SPY with my broker. There are times where I see the spread better priced than my limit order and I still do not get a fill. I resorted to simply splitting my trade into two credit spreads. Even then, these spreads take a while to get filled and my limit price is worse than the market price.

    • Mark D Wolfinger 05/05/2011 at 4:05 PM #


      That is incredible. And there is no reason for you to tolerate that nonsense. Some brokers are not equipped to trade options and their trading software is just not good enough.
      If you have complained to them and they do not produce a satisfactory answer (I cannot imagine what that could be), ask for them to refund the commissions becasue they obviously did a very poor job of trade execution.

      After that, unless you have some great loyalty to that broker, I;d open an account elsewhere. Don’t transfer all assets at once. You would not be able to manage your open positions while they are in transit.

      Thank you for sharing.

  4. Howe 05/05/2011 at 9:53 PM #

    I will share the name of my broker, thinkorswim as they have given me good service plus almost instant fills for IC and spreads.

    In fact, I got quicker fills if I use their default order for IC which they will fill 4 legs for me at my LIMIT price than when I am doing legging seperately.

    One thing to take note is the open interest or liquidity of that counter, which of course you guys are trading indexs or index etf like SPY that have high liquity.

    Just my own personal opinion.

    • Mark D Wolfinger 05/05/2011 at 11:02 PM #

      Hello TH,

      Glad you are pleased with the fills you get at TOS. I note that you get very quick fills. But how are they on price execution? Are you able to get filled near the midpoints between the bid and ask prices? Or do you have to pay the ask and sell the bid?


  5. D. Hom 05/11/2011 at 5:58 PM #

    The TOS platform sets the limit price for spread orders at the mid. I have noticed that a fraction of the orders, less than 50%, get filled within a few seconds at the mid. The other orders either get filled after a few minutes or after I adjust and re-send the order.

    • Mark D Wolfinger 05/11/2011 at 8:51 PM #

      Hi DH,
      I can never get filled at the mid when trading RUT spreads.
      Do you know which underlying assets get such good fills?

  6. D. Hom 05/16/2011 at 5:13 PM #

    I trade options on ETF’s. I’ve gotten decent fills on EEM, EWZ, IYR, GDX, OIH, XLE, SPY, and QQQ(Q).

  7. D. Hom 05/16/2011 at 5:16 PM #

    I’ve also gotten good fills on TLT, in case you have any data on getting fills on the options on interest rate futures.

    • Mark D Wolfinger 05/16/2011 at 7:59 PM #


      I don’t trade any of these products, but a good fill is something valuable. Especially when it’s consistent. With the options I trade – and their wide markets, I just have no way of knowing a good fill. I cannot discover the true inside market.

      Thanks for sharing.

  8. D. Hom 05/19/2011 at 7:36 PM #

    The fills seem to be best around expiration week. I was getting quick fills last Friday and this Monday, more than 50% getting filled at the mid. I haven’t traded the larger products like SPX and RUT, so I don’t know how the ETF fills compare. Hopefully, someone else reading this post can comment on the difference.

    • Mark D Wolfinger 05/19/2011 at 9:03 PM #

      How about it readers -anyone have anything to contribute?