Financial instruments are subject to minimum price changes or increments which are commonly referred to as ticks. Tick values vary by instrument and are determined by the listing exchange. IB provides this information directly from the Contract Search tool on the website or via the Trader Workstation (TWS). To access from TWS, enter a symbol on the quote line, right click and from the drop-down window select the Contract Info and then Details menu options. The contract specifications window for the instrument will then be displayed (Exhibit 1).
To determine the notional value of a tick, multiple the tick increment by the contract trade unit or multiplier. As illustrated in the example below, the LIFFE Mini Silver futures contact has a tick value or minimum increment of .001 which, when multiplied by the contract multiplier of 1,000 ounces, results in a minimum tick value of $1.00 per contract. Accordingly, every tick change up or down results in a profit or loss of $1.00 per LIFFE Mini Silver futures contract.
IB provides to its account holders a variety of proprietary trading platforms at no cost and therefore does not actively promote or offer the platforms of other vendors. Nonetheless, as IB's principal trading platform, the TraderWorkstation (TWS), operates with an open API, there are numerous third-party vendors who create order entry, charting and various other analytical programs which operate in conjunction with the TWS for purposes of executing orders through IB. As these API specifications are made public, we are not necessarily aware of all vendors who create applications to integrate with the TWS but do operate a program referred to as The Marketplace@IB which operates as a self-service community bringing together third party vendors who have products and services to offer with IB customers seeking to fill a specific need.
While MetaTrader is not a participant in The Marketplace@IB, and does not support integration with the TWS, a different vendor, Trade-Commander (trade-commander.com), does offer software which they represent acts as a bridge between MetaTrader and the TWS. As is the case with other third-party software applications, IB is not in a position to provide information or recommendations as to the compatibility or operation of such software.
Regulators and exchanges typically impose limits on the number of commodity positions any customer may maintain with the intent of controlling excessive speculation, deterring market manipulation, ensuring sufficient market liquidity for bona fide hedgers and to prevent disruptions to the price discovery function of the underlying market. These limits are intended as strict caps, with no one account or group of related accounts allowed to aggregate or maintain a position in excess of the stated limit. Outlined below is an overview of the various limit types, calculation considerations, enforcement and links for finding additional information.
I. POSITION LIMIT TYPES
Position limits generally fall into one of the following 4 categories:
1. All Months Limit - apply to the account holder's positions summed across all delivery months for a given contract (e.g. positions in CBOT Oat futures contract for the Mar, May, Jul, Sep and Dec delivery months combined).
2. Single Month Limit - apply to the account holder's positions in any given futures delivery month (e.g. positions in CBOT Oat futures contract for any of the Mar, May, Jul, Sep and Dec delivery months). Note that in certain instances, the limit may vary by delivery month.
3. Spot Month Limit - apply to the account holder's positions in the contract month currently in delivery. For example, the March contract month for a product having delivery months of March, June, September and December, while considered a nearby month at the start of the year, does not become a spot month contract for position limit purposes until the date it actually enters delivery. Most spot month limits become effective at the close of trading on the day prior to the First Notice Date (e.g., if the First Notice Date for a Dec contract is the last trading date of the prior month, then the spot month limit would apply as of the close of business on Nov 29th). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.
4. Expiration Month Limit - expiration month limits apply to the account holder's positions in the contract currently in its last month of trading. Most expiration month limits become effective at the open of trading on the first business day of the last trading month. If the contract ceases trading before delivery begins, then the expiration month may precede the delivery month. (e.g., if the last trade date for a Dec contract is Nov 30th, then the expiration month limit would apply as Nov 1st). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.
II. CALCULATION CONSIDERATIONS
- Position limits are determined by aggregating option and futures contracts. In the case of option contracts, the position is converted to an equivalent futures position based upon the delta calculations provided by the exchange.
- Positions in contracts with non-standard notional values (e.g. mini-sized contracts) are normalized prior to aggregation.
- Most limits are applied on a net position basis (long - short) although certain are applied on a gross position basis (long + short). For purposes of determining the net or gross position, long calls and short puts are considered equivalent to long futures positions (subject to the delta adjustment) and short calls and long puts equivalent to short futures positions.
- Limits are imposed on both an intra-day and end of day basis.
III. ENFORCING LIMITS
IB acts to prevent account holders from entering into transactions which would result in a position limit violation. This process includes monitoring account activity, sending a series of notifications intended to allow the account holder to self-manage exposure and placing trading restrictions upon accounts approaching a limit. Examples of notifications which are sent via email, TWS bulletin and Message Center are as follows:
1. Information Level - sent when the position exceeds 50% of the limit. Intended to inform as to the existence of the position limit and its level.
2. Warning Level - sent when the position exceeds 70% of the limit. Intended to provide advance warning that account will be subject to trading restrictions should exposure increase to 90%.
3. Restriction Level - sent when the position exceeds 90% of the limit. Provides notice that account is restricted to closing transactions until exposure has been reduced to 85%.
IV. ADDITIONAL INFORMATION
For additional information, including various exchange rules position limit thresholds by contract and limit type, please refer to the following website links:
CFE ( Rule 412) - http://cfe.cboe.com/publish/CFERuleBook/CFERuleBook.pdf
CME (Rule 559) - http://www.cmegroup.com/rulebook/CME/index.html
CME (CBOT Rule 559) - http://www.cmegroup.com/rulebook/CBOT/index.html
CME (NYMEX Rule 559) - http://www.cmegroup.com/rulebook/NYMEX/index.html
ELX Futures (Rule IV-11) - http://www.elxfutures.com/PDFs/Rulebooks/ELX-FUTURES-RULEBOOK.aspx
ICE US / NYBOT (Rules 6.26 to 6.28) - https://www.theice.com/publicdocs/rulebooks/futures_us/6_Regulatory.pdf
NYSE LIFFE (Rule 420) - http://www.nyseliffeus.com/rulebook
OneChicago (Rule 414) - http://www.onechicago.com/wp-content/uploads/rules/OneChicago_Current_Rulebook.pdf
The OneChicago NoDiv single stock futures contract (OCX.NoDivRisk) differs from the Exchange's traditional single stock futures contract by virtue of its handling of ordinary distributions (e.g., dividends, capital gains, etc.). Whereas the traditional contract is not adjusted for such ordinary distributions (the discounted expectations are reflected in the price), the NoDiv contract is intended to remove the risk of dividend expectations through a price adjustment made by the clearinghouse. The adjustment is made on the morning of the ex-date to ensure that the effect of the distribution is removed from the daily mark-to-market or cash variation pay/collect.
For example, assume a NoDiv contract which closes at $50.00 on the business day prior the ex-date at which stockholders of a $1.00 dividend are to be determined. On the ex-date OCC will adjust that prior day's final settlement price from $50.00 downward by the amount of the dividend to $49.00. The effect of this adjustment will be to ensure that the dividend has no impact upon the cash variation pay/collect as of ex-date close (i.e., short position holder does not receive the $1.00 variation collect and the long holder incur the $1.00 payment).
Account holders are encouraged to routinely monitor their order submissions with the objective of optimizing efficiency and minimizing 'wasted' or non-executed orders. As inefficient orders have the potential to consume a disproportionate amount of system resources. IB measures the effectiveness of client orders through the Order Efficiency Ratio (OER). This ratio compares aggregate daily order activity relative to that portion of activity which results in an execution and is determined as follows:
OER = (Order Submissions + Order Revisions + Order Cancellations) / (Executed Orders + 1)
Outlined below is a list of considerations which can assist with optimizing (reducing) one's OER:
1. Cancellation of Day Orders - strategies which use 'Day' as the Time in Force setting and are restricted to Regular Trading Hours should not initiate order cancellations after 16:00 ET, but rather rely upon IB processes which automatically act to cancel such orders. While the client initiated cancellation request which serve to increase the OER, IB's cancellation will not.
2. Modification vs. Cancellation - logic which acts to cancel and subsequently replace orders should be substituted with logic which simply modifies the existing orders. This will serve to reduce the process from two order actions to a single order action, thereby improving the OER.
3. Conditional Orders - when utilizing strategies which involve the pricing of one product relative to another, consideration should be given to minimizing unnecessary price and quantity order modifications. As an example, an order modification based upon a price change should only be triggered if the prior price is no longer competitive and the new suggested price is competitive.
4. Meaningful Revisions – logic which serves to modify existing orders without substantially increasing the likelihood of the modified order interacting with the NBBO should be avoided. An example of this would be the modification of a buy order from $30.50 to $30.55 on a stock having a bid-ask of $31.25 - $31.26.
5. RTH Orders – logic which modifies orders set to execute solely during Regular Trading Hours based upon price changes taking place outside those hours should be optimized to only make such modifications during or just prior to the time at which the orders are activated.
6. Order Stacking - Any strategy that incorporates and transmits the stacking of orders on the same side of a particular underlying should minimize transmitting those that are not immediately marketable until the orders which have a greater likelihood of interacting with the NBBO have executed.
7. Use of IB Order Types - as the revision logic embedded within IB-supported order types is not considered an order action for the purposes of the OER, consideration should be given to using IB order types, whenever practical, as opposed to replicating such logic within the client order management logic. Logic which is commonly initiated by clients and whose behavior can be readily replicated by IB order types include: the dynamic management of orders expressed in terms of an options implied volatility (Volatility Orders), orders to set a stop price at a fixed amount relative to the market price (Trailing Stop Orders), and orders designed to automatically maintain a limit price relative to the NBBO (Pegged-to-Market Orders).
The above is not intended to be an exhaustive list of steps for optimizing one's orders but rather those which address the most frequently observed inefficiencies in client order management logic, are relatively simple to implement and which provide the opportunity for substantive and enduring improvements. For further information or questions, please contact the Customer Service Technical Assistance Center.
The following article discusses the special risks associated with hedged financing transactions which employ the traditional OneChicago single stock future contract (designated by product symbol suffix of "1C") which is eligible for adjustment on special dividends or distributions but not adjusted for ordinary dividends. The particular risk described below can be avoided through use of the Exchange's dividend protected or NoDiv product (designated by product symbol suffix of "1D") which are adjusted to remove the impact of all dividends.
Account holders transacting in EFPs, including Low Synthetic Yield positions using the OneChicago traditional single stock future ("1C" product) are advised to pay particular attention to the risks inherent in such positions, the effect of which may be to significantly alter the cost of the position. These risks generally originate from corporate actions, specifically those involving a distribution to the holder of record for the stock with no corresponding adjustment made to the futures contract deliverable.
-Sell 100 @ $13.29 on 10/29/09
-Buy 100 @ $9.50 on 11/30/09
- Buy 1 contract @ $12.50 on 10/29/09
- Sell 1 contract @ $9.49 on 11/30/09
-Buy 100 @ $3.32 on 11/30/09
Clients who are unable to trade more than one futures contract per order should first check their order presets to ensure that they have not established an order size limit in the precautionary settings. If this is not the case, then the restriction has likely been imposed by IB due to the client's failure to accept the Arbitration Agreement which automatically imposes a trading limit of one contract per order. Clients decline to accept the agreement when presented through the application process but who subsequently wish to accept need to contact Customer Service to obtain and execute a physical copy of the agreement.
U.S. residents are unable to trade options on futures for most foreign indicies, such as the DAX.
Accumulate/Distribute is a sophisticated trading algorithm which allows one to buy or sell large orders by splitting the trade into multiple orders with the goal of reducing visibility and market impact.
This algo will only operate when the trader is logged into the TWS. If the trader has been logged out prior to the algo completing (either by user action or by the automated nightly restart), a message will appear upon the next log in which will allow for re-activation of the algo.
The ScaleTrader is a sophisticated trading algorithm which allows one to enter a large quantity order that is executed in a series of increments or components, with each component being executed at a progressively better price.