Pricing of stock trades

This could be of interest for those who actively trade stocks.…

**Pricing of Stock Trades Varies Widely Among Popular Brokers, Study Finds**
**TD Ameritrade delivered best prices in professors’ experiment, while Interactive Brokers lagged behind**
**By Alexander Osipovich, The Wall Street Journal, Sept. 16, 2022**

__A recent academic study found wide disparities in the prices that investors get when buying and selling stocks through a half dozen popular brokerages. TD Ameritrade delivered the best prices, the study found, followed by Fidelity Investments, E*Trade and Robinhood Markets Inc.__

**In a surprise to some investors, at the bottom of the pack were a pair of trading platforms from Interactive Brokers Group Inc. — a brokerage catering to day traders that has long touted its execution quality....**

**To do the study, the authors spent their own money to buy and sell stocks 85,000 times over a nearly six-month period, attempting to place the same trades simultaneously with different brokers and measuring the prices they got. Mr. Schwarz said he and his colleagues lost about $23,000 doing the trades. They didn’t receive funding from Wall Street for the study....** [end quote]

Here is the link to the study.


**We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account-level round-trip cost ranges from –0.07% to –0.45% excluding any commissions. The dispersion is due to off-exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF cannot explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.** [end quote]

As a risk-averse investor, I’m anything but an active stock trader. This doesn’t impact me, but others might find it useful.


We hear that brokers get compensated for sending their orders to a chosen market maker rather than the exchange. Money changes hands. Presumably that comes from the bid-ask spread.

And that encourages a wider bid ask spread.

We are cautioned that the bid ask spread reported is from an exchange. And may not include info from other exchanges. And brokers brag of completing your order at a better number than the published bid ask.

Modern electronics make for a very complex market and programs that can pick the best deal for your order (or the one most profitable for the firm).


No time for adding this today…and I have discussed it before…

But y’all need to worry about SPIC.

SPIC is not a federal program.

It the light of FedEX’s announcement think again…

The shoes are dropping.

I currently have three brokerage accounts. I have found that “market price” trades are handled differently between them, especially on stocks which don’t have enormous liquidity, but there are always “limit” trades available to those with a specific price in mind. Also, while Interactive doesn’t give the best “market” pricing (in fact, they warn you about that before you hit the “submit” button) they also offer algorithmic types of trading which they claim gives an edge, but may not have been evaluated as it is not comparing apples to apples.

In my case, I tolerate Interactive’s complexities and quirks because they are the only retail broker that I’ve run across which offers nearly commission-free Forex trading as well as the ability to purchase stock on a broad number of foreign markets (which supports my philosophy of using a diversity of currencies as an additional dimension to a structured portfolio).

After years of appallingly poor pricing, as of a few years ago when they started trading their own book, especially when trading highly liquid shares, Vanguard’s pricing has become competitive.

In the past, Fidelity was a better platform than the other brokers I have accounts at for individual bond purchases, though Vanguard has caught up. Fidelity also has a sophisticated cash management function which allows it to efficiently offer many of the convenience advantages of a bank with some additional benefits.



I loved fidelity for years, but starting a year ago they started becoming rude to their overseas customers (new or higher fees and burdensome rules), and I am definitely an overseas customer. I moved to Schwab primarily because their platinum or whatever credit card attached to the account suddenly beat the competition on withdrawal amounts and availability and Fidelity blew me off.

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