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Live Trading commissions - Questions
Beat B.
posted

I'm slowly inching closer to releasing my first day trade strategy into the wild, and since my program will trade dozens of times a day I'm starting to pay more attention to commission settings and trying to get the settings as real as possible. I have a couple of questions regarding the IB integration for any of you that already have a live trading algorithm:

  • Per default, if you don't specify a commission, your backtest defaults to $0.03 per share. This is obviously on the very high side and would result in simulated charges of ($0.03 * 2500 * 2) = $150 for a simple round-trip buy-sell of 2500 shares. I first thought the simulated slippage was eating into my gains, until I realized it's mostly the high simulated trading cost. Keep in mind, I'm not complaining about this setting at all - if your code works with $0.03 per share then I assume it will likely do quite a bit better in live testing, but it's too much of a factor for intra-day trades with thin margins.

  • IB provides two pricing structures:

    • Fixed: $0.005 per share, with a mimimum of $1.00 and a maximum of 0.5%. However, it also lists under exceptions that "US API Directed Orders" are priced at $0.0075, or in other words have a 50% higher transaction cost if I understand this correctly
    • Tiered: $0.003 per share plus various other transaction fees. Harder to calculate, but I'm guessing this would result in maybe ~$0.006 of fees for the first 300,000 shares traded, and trend down for any shares over 300,000 shares traded. Does anybody know if there are any API fees added to the Tiered structure?

Long story short, it seems that:

a) Don't use the default setting of $0.03 for day trading simulations to get more real results.
b) Reducing the simulated cost per trade to maybe $0.0078 is a good approximation for an IB fixed pricing structure.
c) Assuming there are no API fees, $0.006 seems like a good approximation for an IB tiered structure which seems the best choice for intra-day trades in this case.
d) Will there ever be a case where Quantopian takes a "cut" of trading fees that needs to be considered?

Does anybody have any feedback or direction to apply the most realistic commissions environment for intra-day trades? Appreciate any feedback...

Thanks, Beat

PS: I know there are some minor additional fees, and higher costs for Canadian stocks etc. but I'm leaving this out to simplify the discussion.

1 response
Dan Dunn

a) I think your analysis of the default commission is right on. It's probably too aggressive, but it's easy enough to turn it down to your actual commission costs.
b) I hesitate to speak for IB, or your experience with IB, because I'm not a party to your relationship with IB. That said, I think your analysis is solid.
c) Ditto
d) There may be a point where Quantopian charges a monthly platform fee. It would probably be a tier structure related to your size of assets and number of algorithms trading. I can't imagine us ever moving to a commission model - it just doesn't make sense for our business.

I encourage you to get a version of your algo running against the IB paper trading account. That is IB simulating your commission, too, and you can validate your work as well.

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.