By HFT here I mean anything with holding period less than 5 to 10 minutes.
Any empirical/anecdotal evidence of using it successfully on even higher frequencies?
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$\begingroup$ possible duplicate of What is best trading API for hft $\endgroup$– Dirk EddelbuettelCommented Feb 8, 2011 at 23:50
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$\begingroup$ IMO, that other question cannot be answered so I'm voting to close. This question has an answer, so we can leave it open. $\endgroup$– ShaneCommented Feb 8, 2011 at 23:59
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6$\begingroup$ defining hft as anything less than 5-10 mins is not typical in this industry, cause that could also refer to day trading just a few names which no one i know would refer to as hft. $\endgroup$– AnonQuantCommented Feb 9, 2011 at 4:28
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$\begingroup$ by HFT you mean intra-day trading which Yes it is feasible for $\endgroup$– pyCthonCommented Feb 5, 2013 at 14:47
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$\begingroup$ There is a discussion here about Interactive Brokers: linkedin.com/groups/… $\endgroup$– PamCommented Apr 15, 2013 at 8:58
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7 Answers
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Holding period and trade frequency are two different things. If you have a high trade frequency, the name of the game is negotiating lower commissions. That being said, the TWS API gives you the same quality feed as you get using TWS itself.
From Article on HFT Provided by Dirk Eddelbuettel in this question about HFT:
High-frequency trading (HFT) is a subset of algorithmic trading where a large number of orders (which are usually fairly small in size) are sent into the market at high speed, with round-trip execution times measured in microseconds (Brogaard, 2010). Programs running on high-speed computers analyse massive amounts of market data, using sophisticated algorithms to exploit trading opportunities that may open up for milliseconds or seconds. Participants are constantly taking advantage of very small price imbalances; by doing that at a high rate of recurrence, they are able to generate sizeable profits. Typically, a high frequency trader would not hold a position open for more than a few seconds. Empirical evidence reveals that the average U.S. stock is held for 22 seconds
Updates and orders with the TWS API occur on the order of 10s to 100s of milliseconds, as far as I can tell, which would disqualify it for use in the regime described in the article. (This is just what I have measured on my own computer on my retail Internet connection.)
Honestly I would be surprised if anyone could do HFT with any retail product. Sounds impossible.
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1$\begingroup$ Most definitions would still include something on the of order 10s of milliseconds as HFT. If you can find something sufficiently novel to exploit at that frequency, it is probably at least possible with some retail product. $\endgroup$– SCVirusCommented Feb 9, 2011 at 7:37
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$\begingroup$ Any alternatives to IB in the retail world? $\endgroup$– user40Commented Feb 9, 2011 at 7:41
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$\begingroup$ Or at least not impossibly expensive! $\endgroup$– user40Commented Feb 9, 2011 at 7:42
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4$\begingroup$ gndt.com and limebrokerage.com is probably as close as you can get but you'd have to do significant volume in order to get a commission structure that lets you take advantage of any short term opportunities $\endgroup$ Commented Feb 10, 2011 at 3:03
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2$\begingroup$ I worked in this area for 8 years. Most HFT algos are actually quite simplistic and typically a limited size opportunity. The key to making money is Time & Price priority. The first person to arrive normally gets the majority of the profit. This is why speed is critical. We were beating our opponents (which we could see in the order flow) by as little as 10 microseconds. That was enough, but they always worked to improve their game and so did we. Faster computer, faster algos, faster networks. Everything was critical and no IB wouldn't cut it. For that game neither would Lime. $\endgroup$ Commented Jun 22, 2016 at 4:43
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I'll just add that with Interactive Brokers you have to be aware of their cancel fees. Remember, Interactive Brokers owns Timber Hill, a very large and active market maker. They will discourage you from competing with Timber Hill through monetary disincentives, among other things.
For example, if you send a directed order (i.e., you don't allow IB to SMART route it), that order will be subject to a cancellation fee. See: http://individuals.interactivebrokers.com/en/p.php?f=otherFees, specifically the Stock tab.
You'll notice a $0.12 fee for cancelling or modifying directed orders. This is outrageously high and completely eliminates any HF strategy, even if the latency, market data, and other issues raised in the other answers were non-existent.
IB is not interested in HFT flow. They make their money in other ways. Automated traders that choose to use IB are best off letting them route with SMART and accept/embrace the fact that Timber Hill will get a chance to internalize the order.
answered Sep 8, 2011 at 11:20
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$\begingroup$ Do not make confusion about quote stuffing and trading. Quick trades are fine with IB (even about half second). If we are talking of quote stuffing that is an abusive practice which is being banned by all exchanges, and there are fines up to $1M for such (nonsense and NON profitable) actions which are bordering a DOS attack. See this group for more info too: linkedin.com/groups/… $\endgroup$– PamCommented Apr 15, 2013 at 9:01
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9$\begingroup$ Who said anything about quote stuffing? $\endgroup$ Commented Apr 15, 2013 at 11:29
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4$\begingroup$ Sorry, you've apparently missed the point entirely. Please re-read my answer. IB imposes significant fees and restrictions on directed orders. If you're using SMART, you're not a high-frequency trader. $\endgroup$ Commented Apr 15, 2013 at 20:53
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1$\begingroup$ You can't use directed orders with the cost plus plan. If you're not directing your orders, you're not a high frequency trader. $\endgroup$ Commented Apr 21, 2013 at 14:14
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1$\begingroup$ I guess what @asianskills meant was even in HFT with all directed orders, one should not be frequently canceling orders. However, modifying orders is inevitable $\endgroup$– GuLearnCommented Jul 10, 2013 at 2:33
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This has nothing to do with IB in particular. The primary issue with retail data feeds is that they run over the Internet. That means dealing with a shared line and all of the latency spikes that comes with it.
Institutional traders, even when they aren't co-located, build a private network pipe to their data vendor since that's the only way to prevent network jitter (and hacking attempts). Regardless of vendor or even application domain, it is simply impossible to run a real-time mission-critical business over the Internet.
So, no, IB can't be used for HFT. And neither can anything else.
answered Feb 9, 2011 at 15:58
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For real HFT, IB is absolutely not going to work. The prices in IB update a max of about 7 times a second.
However, for a holding period of 5 to 10 minutes though, which is certainly not high frequency, it works fine.
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Data over IB's API is not real time. You can't even match up bid, asks, and lasts with their appropriate sizes. It's actually a 200 ms snapshot. For more reliable data go with B-PIPE, DTN or eSignal (they all have APIs) and a high speed co-located Ethernet or T1 connection to your vendor. Lots of additional coding is required.
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1$\begingroup$ it's 250ms, source ib help desk $\endgroup$– BigChiefCommented Mar 19, 2016 at 15:58
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Interactive Brokers does not offer execution or even a market data feed with speeds required for HFT. With HFT trading systems now competing for micro-seconds, as opposed to milliseconds 4-5 years ago - a typical retail trader connecting over the Internet is out of league, even with dedicated lines just the network round-trip time will render any HFT attempt impossible.
That having said - Interactive Brokers provides one of the best platforms for automated trading available to retail traders and small financial advisor firms.
For example there are third party tools such as this Excel spreadsheet that I started using recently, that make automated trading easy with just basic knowledge of Excel, without any special programming skills:
http://www.tradinggeeks.net/downloads/interactive-brokers-excel-trader/
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IMHO, IB is one of the best retail brokers for HFT.
It is indeed perhaps the only one that retail traders can use because: - they provide an easy to use API to trade automatically. - commissions are very competitive. I haven't found a cheaper broker then them - IB is owned by HFT firm; and they seem to know what they are doing!
I have not found any subtitute to them yet!!!!
