Hi all,
I don’t have an IB account but would see an advantage in it if trading a life port or R2G using the Market Open Algo provides trade execution very close to the actual open price.
Does anybody have experience in how well trade execution works at market open? Is it realistic to strive for trading where the execution price is closer to ‘Next Open’ instead of ‘Next Average of High and Low’?
Hi there,
While IB is usually quite good in delivery a price that is near the “official” open, I find that there are still major issues that are general to the “market on open” execution strategies. In many cases the open price already includes what I believe is a manipulated a bias against our trades, especially if they are based on common methodologies such as pull-back and classical value and are placed in advance and hence are visible to market makers.
For example if you attempt to buy a stock that comes up in popular screens then you will often find a first bar of the day has gapped up significantly against you. It is then often followed by several 5 minute bars that may be heading down to touch the previous close - before later “deciding” about the truth direction of the day which may be either up or down.
Look at some simple examples from Friday, all with heavily traded liquid stocks:
CLH opened with a 1.7% gap up, only to give that up but eventually to clock a gain for the day. STLD had a similar gap but the day result was about even. EBAY, TSCO are other great example of that.
In such cases, which are very common, a good “market on open” execution by the broker would be of little help, it would still cost you significantly. A strategy that has an annual turn of 1000% , i.e. switches its portfolio 10 times a year, and losses just 0.5% on each trade due to manipulated first bars, would bear a cost of -10% annually for that kind of fill. A buy @ limit would have worked much better than a market on close order.
The flip side of this argument are stocks that open up and run up. In such cases you would miss a potentially very lucrative trade. How can we tell in advance which is more prevalent and whether a market-on-open is better (or worse) than limit orders?
My opinion is that depending on the nature of the strategy, some systems are more prone to manipulated first bars. What we need is a simulation tool in Portfolio 123 to be able to analyze how a limit entry order and how a limit exit order would fare for the specific system.
The feature request for limit order on simulation has been around a long time. Maybe its time for P123 to consider the priority on this.
Here are some links to these requests (there were many more instances over the year):
[url=http://www.portfolio123.com/feature_request.jsp?view=&cat=-1&featureReqID=713]http://www.portfolio123.com/feature_request.jsp?view=&cat=-1&featureReqID=713[/url]
[url=http://www.portfolio123.com/feature_request.jsp?poll=37]http://www.portfolio123.com/feature_request.jsp?poll=37[/url]
Thanks,
Z.
hi there!
Thanks for your thougts. A limit order feature would indeed be desirable and i just voted for these 