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Best Brokers for Order Execution 2020

Blain Reinkensmeyer

The StockBrokers.com best online brokers 2020 review (10th annual) took six months to complete and produced over 30,000 words of research. Here's how we tested.

When you click to buy 100 Apple (AAPL) shares using a market order with your online broker, the order is algorithmically routed to a variety of different market centers (market makers, exchanges, ATSs, ECNs), and is eventually filled. On average, the entire process takes a fraction of a second. By the time you navigate to the Order Status page, you will find a confirmation that you now own 100 shares of Apple, purchased at whatever best price your online broker could get you at that moment. Congratulations, your broker just routed your order and you made a stock trade.

Best Brokers for Order Execution Quality

Here's our summary of the best online brokers for order execution quality.

Fidelity

Fidelity - Open Account
Trade Commission-Free: No commissions to trade online U.S. stocks, ETFs, and options.1

With over $2 trillion in client assets, Fidelity is a value-driven online broker offering $0 stock trades, industry-leading research, excellent trading tools, an easy-to-use mobile app, and comprehensive retirement services. Overall, Fidelity is a winner for everyday investors. Read full review

Interactive Brokers

Interactive Brokers - Open Account
Exclusive Offer: New clients that open an account today receive a special margin rate.

While Interactive Brokers is not well known for its casual investor offering, it leads the industry with low-cost trading for professionals. Through the Trader Workstation (TWS) platform, Interactive Brokers offers excellent tools and an extensive selection of tradable securities. Read full review

Cobra Trading

Cobra Trading - Open Account
Current Offer: Get a 50% comm. discount for 60 days.

Cobra Trading was founded in 2003 by Chadd Hessing as a direct-access, low-cost online brokerage for professional stock traders. While Cobra Trading offers multiple trading platforms and personalized service, trading costs are more expensive than leader Interactive Brokers. Read full review

Charles Schwab

Charles Schwab - Open Account
Current Offer: $0 online stock, ETF, and options commissions at Schwab.

Founded in 1973, Charles Schwab is a full-service brokerage with over $3 trillion in total client assets. As a low-cost leader offering $0 stock trades, Charles Schwab provides investors excellent stock research, quality trade tools, and professional planning for the future. Read full review

TradeStation

TradeStation - Open Account
Promo Offer: Commission-Free Trades on Stocks, ETFs & Options Trades

As a trading technology leader, TradeStation supports casual traders through its web-based platform and active traders through its award-winning desktop platform, all with $0 stock and ETF trades. Read full review

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SEC Rule 606 Reporting

Unfortunately, the way 606 reports are structured, there is no universal metric that can be pulled and used to conduct an apples-to-apples comparison between one broker and another.

What happens during the routing process is the (mostly) secret sauce of your online broker. This is known as “order execution quality,” or how well your broker executes your order to get you the best possible fill price (the net price paid for the shares). More specifically, brokers seek to achieve price improvement, which means the order was filled at a price better than the National Best Bid and Offer (NBBO). I say, “mostly” because the SEC requires each broker to disclose certain routing and execution metrics in a standard Rule 606 quarterly report.

To keep things simple, the most important data that can be extracted from Rule 606 reports are twofold: what percentage of orders are being routed where, and what payment for order flow (PFOF) is the broker receiving, on average, from each venue. Unfortunately, the way 606 reports are structured, there is no universal metric that can be pulled and used to conduct an apples-to-apples comparison between one broker and another.

SEC 606 Report sample
SEC 606 Report sample.

Generating Revenue from PFOF

Looking at the big picture, there is nothing wrong with this. Revenue from PFOF goes towards paying for all the benefits you take for granted as a customer, including free streaming real-time quotes, advanced mobile apps, high-quality customer support, research reports, etc.

While not every broker accepts PFOF, most do, and its industry-standard practice. When you went to buy those 100 shares of Apple, your online broker’s routing system tried to get you the best possible price. Depending on where the order is routed, your online broker can earn a very tiny sum of money on your trade, say $.10 - $.20 in the case of your 100-share market order. Some brokers keep it for themselves, others keep a portion of it and pass the rest back to you; and a handful pass all the earnings back to you. You won’t see it as a cash deposit; instead, you will see that your order was executed at an ever so slightly better price (price improvement).

$.10 - $.20 may not sound like much; however, if your 100-share market order had been a 1,000-share order instead, that payment could have been $1 – $2, or more. The largest online brokers route hundreds of thousands of client trades every day. Known as daily average revenue trades (DARTs), your online broker can make millions of dollars from routing clients’ orders over the course of each year.

Looking at the big picture, there is nothing wrong with this. Revenue from PFOF goes towards paying for all the benefits you take for granted as a customer, including free streaming real-time quotes, advanced mobile apps, high-quality customer support, research reports, etc.

PFOF Caveats

I like to tell new investors that learning how to buy and sell stocks profitably is a life-long game that never ends. I've come to accept that my pursuit of PFOF wisdom is a similar journey.

How the industry interprets the definition of PFOF is subject to much debate. For example, with options trading, if you think about "payment" more broadly as "profiting," then all brokers accept PFOF for options. More specifically, if the online broker receives rebates from the exchanges they route their customer options traders to (which they all do), then they are profiting from their customer order flow. So, isn't that PFOF? We believe it is, but technically speaking, it's debatable.

Options aside, "what about equities?" you ask. Well, that's a bit more complicated.

Some online brokers own and operate an Alternative Trading System (ATS). These firms technically do not accept PFOF; however, the ATS of each firm is a separate legal entity and is undoubtedly not operated as a non-profit. So, are they generating revenue from their order flow? How does the overall order quality compare to other brokers who do not operate an ATS? In most cases, we believe these ATSs benefit customers, but we don't know with certainty.

Similarly, some online brokerages own and operate a market maker. In their disclosures, they acknowledge that they can internalize orders, meaning trade against their own customer orders. As a result, they keep any profit or loss realized from the trade. Operating a market maker and using an algorithm to pick and choose which customer orders you want to bet against sure sounds like a losing proposition for the customer. However, as long as the broker meets the Best Execution standards, it's perfectly legal, and, it's not technically PFOF. In our view, this sure sounds like profiting from order flow.

All in all, I like to tell new investors that learning how to buy and sell stocks profitably is a life-long game that never ends. I've come to accept that my pursuit of PFOF wisdom is a similar journey.

Order Execution Factors in Your Control

As you now know, a variety of factors come into play with your broker’s ability to provide quality order execution. Here is a list of factors in your control that directly impact execution quality:

  1. What stock is being tradedCompanies in the S&P 500, for example, all boast extremely large market caps (they are worth billions) and high average daily volumes of millions of shares per day. This means there is a lot of liquidity (buyers and sellers), which translates into consistently tight spreads (the difference in price between the bid and the ask). On the flip side, a micro-cap stock (or a penny stock traded on a non-major exchange, e.g. OTCBB) that trades only 100,000 shares per day, on average, has little liquidity. As a result, spreads are often very wide, which means you are less likely to obtain a quality, clean fill on your order.
  2. Time of day – The first 15 minutes of each trading day are statistically the most volatile, meaning stocks fluctuate the most during these times. More specifically, bid / ask spreads are wider, on average. Similarly, pre- and post-market hours have much wider spreads, including far less liquidity, as compared to regular market hours.
  3. Order type – The most commonly used order type is a market order, which basically says, “buy or sell these shares immediately at whatever the best current market price is.” Limit orders, the second most commonly used order type, on the other hand, say, “buy or sell these shares only at the price I set, or better.” As one can imagine, limit orders may sometimes take longer to fill (if they fill at all), but have a higher statistical chance of being filled at a better price. Just be careful, a patient approach using limit orders could result in chasing a stock higher in price.
  4. Order size – According to the WSJ, "nearly half of all trades in the U.S. stock market are in odd-lot sizes—in which fewer than 100 shares change hands." However, regulation does not currently cover these odd lot orders, so it is uncertain if everyday investors are getting the best order execution quality. As a result, trading using round lots, e.g., 100 shares, instead of an odd lot, e.g. 57 shares, may result in a cleaner fill from your online broker.

The Trade-off

...the more order flow, or DARTs, an online broker has control of, the more negotiating leverage they have with the various market makers.

Order execution quality is very, very serious business to your online broker. Every big name online broker has a designated team of specialists who analyze client orders in aggregate with a fine-tooth comb. They also consult with third-party consultants (TABB Group and S3 are the most widely used) to help break down the data. By analyzing the fill quality of the millions upon millions of trades clients make each month, they can use the data to negotiate with different market makers on behalf of all clients.

Think about it: market makers make money by processing orders. If there are no orders (order flow) routed to them, then they can’t make any money. As a result, market makers compete against each other for order flow, and each online broker chooses which market makers get which orders on our behalf. Your online broker uses this to their advantage for negotiations, as they should.

As we can imagine, the more order flow, or DARTs, an online broker has control of, the more negotiating leverage they have with the various market makers. This is where it gets tricky. To attract order flow, market makers will sell online brokers on two key benefits: price improvement and PFOF (remember, this is paying the broker a tiny sum for each order they send). Make no mistake, there is a difference in the order execution quality market makers provide and how much they will pay out in PFOF.

Thus, here is where the real conundrum lies. Should online brokers focus on negotiating for more PFOF, sacrificing price improvement for their clients in the process, or should they focus on negotiating for greater price improvement and sacrifice generating extra revenue on their clients’ order flow? Of many debatable takeaways, this is one topic that the book Flash Boys by Michael Lewis brought into the media spotlight when the book was published in 2014.

Quality Versus Payment

Using this information, one can take an educated guess (and I mean a guess) as to how each broker has their dial set.

To understand the relationship between execution quality and PFOF, think of a dial. The more the dial is turned to the left, the more revenue your broker generates off PFOF, and the less benefit your trade receives. Turn the dial to the right and your broker makes less money off PFOF, and you pay less for your order execution.

Payment for order flow dial

Going back to those fancy SEC 606 reports, there is no way to know exactly how each broker’s dial is set. As stated earlier, the reports are outdated and lack universal metrics that allow for direct peer-to-peer comparisons. However, they do require each broker to disclose any PFOF relationship they have with a market maker. They also require each broker to disclose what percentage of clients’ orders, sorted by type, are routed to each market maker.

Using this information, one can take an educated guess (and I mean a guess) as to how each broker has their dial set. Our opinion as to how each broker’s dial is set is an important component of our rating system for order execution quality (ranking methodology and results further down).

Size Matters in Negotiations

The takeaway here is twofold. First, size matters in negotiating deals. Second, size provides larger brokers a massive advantage over smaller brokers because there is more total execution quality benefit to distribute.

Now that we understand brokers have a theoretical dial they control, we can discuss one final piece of the puzzle – proper tweaking. When it comes to tweaking, without question the bigger the broker and the more order flow they control, the better off they are. There is a measurable advantage to being big.

Why size matters is a simple lesson in economics. Let’s say you have online broker A and online broker B. Broker A is small, they have only 10,000 DARTs (order flow) each day. Broker B, on the other hand, has been in business for several decades and built up a large client base with an order flow of 100,000 daily DARTs. So, let’s say Broker A and B decide to route their orders to exactly the same market makers and both want a balance of PFOF with order execution quality. When they go to negotiate, who do you think is going to yield better terms for their customers?

Without question, Broker B. Why? Because this broker has far more leverage at the negotiating table. Furthermore, Broker B, with its size and larger budgets, has a team of order execution experts (see “The Trade-off” above) to collect data on behalf of clients and make sure each market maker they do business with is keeping their end of the deal in providing consistent price improvement.

Stock trading payment for order flow comparison

The takeaway here is twofold. First, size matters in negotiating deals. Second, size provides larger brokers a massive advantage over smaller brokers because there is more total execution quality benefit to distribute. Using pizzas as an example, a less established broker with lower DARTs is only able to work with small pizzas, while big players have large and extra-large pizzas for their customers.

A World With $0 Trades

Thanks to a September 2019 pricing-war, most online brokers cut their baseline stock and ETF commissions to $0 per trade. No question, this is a big deal for everyday investors.

By moving to $0 per trade for stocks and ETFs, online brokers gave up a profitable line of revenue, costing some big names hundreds of millions in lost annualized revenue. After the news hit, based on Wall Street's response, it was vary apparent that tweaking the PFOF dial alone was not going to be able to make up the difference.

While the latest price war was not all cupcakes and rainbows (squeezed margins put fresh pressure on the industry to consolidate further), as far as trading costs go, everyday investors came out on top.

Which broker has the best execution?

For everyday investors, Fidelity offers the best order execution quality. For professional traders, Interactive Brokers, under the IBKR Pro commissions plan, offers the best order execution quality. See section “Order Execution Factors in Your Control” for a list of factors that directly impacts execution quality.

Does order size impact order execution?

According to the WSJ, nearly half of all trades are odd-lot sizes, meaning fewer than 100 shares being traded. Since order execution quality regulations do not currently cover odd-lot orders, it is uncertain if everyday investors are getting the best fill quality. Most industry experts recommend using round lots, e.g., 100 shares, to achieve the cleanest executions.

What is price improvement?

Price improvement means that your buy or sell order was filled at a price better than the National Best Bid and Offer (NBBO). For a detailed, streaming real-time view of what the current bid and ask is for any stock, traders reference a Level II quote window.

How does payment for order flow work?

Each time you buy or sell shares of stock, your online brokerage routes your order to a variety of different market centers (market makers, exchanges, ATSs, ECNs). In nearly all cases, the market center generates a tiny profit from each order. In return, most online brokers then receive a payment (revenue) from the market maker. This practice of receiving payments from market centers for routing them orders is called payment for order flow (PFOF). PFOF is very common in the brokerage industry.

What is a Rule 606 report, and why is it important?

The SEC requires each broker to disclose certain routing and execution metrics in a standard Rule 606 quarterly report. The most important data that can be extracted from Rule 606 reports are twofold. First, what percentage of orders are being routed where. Second, 606 reports show what payment for order flow (PFOF) the broker receiving, on average, from each market center.

What are the most important factors that affect order execution quality?

There are four factors that every investor can control that will directly impact the quality of their buy and sell orders. What stock is being traded (more liquidity, the better)? What is the time of day (avoid trading immediately after the opening bell and during post-market hours)? What is the order type being used (non-marketable limit orders are best)? Finally, what is the order size (try to stick to round lots, e.g., 100 shares)?

Other Notes

Market and limit orders are the two most common order types used by retail investors. While every broker has an auto (smart) routing option by default, some brokers offer level II quotes with direct-market routing, providing clients the ability to route their orders wherever they’d like. Furthermore, some brokers provide their clients with the ability to manage their market center rebates and fees. Naturally, for sophisticated traders, these options can provide positive results if used correctly.

Interactive Brokers trade ticket
Interactive Brokers trade ticket.

In 2015, Fidelity became the first to begin showing per order and cumulative price improvement across each account (Charles Schwab became the second broker to do so in 2018). For month-to-date, year-to-date, and previous 12-month periods, customers can see exactly how much they paid in commissions, how many trades received price improvement, and the total price improvement. Price improvement means the order was executed lower than the best ask or higher than the best bid at the time of the trade.

Fidelity order history price improvement
Fidelity order history price improvement.

Closing Thoughts

Order execution quality is complicated to understand and no universal metric exists to conduct apples-to-apples comparisons using 606 data. Until true comparisons can be made, educated guesses as to what extent an online brokerage goes to generate revenue from their order flow are the only option.

For everyday investors and active traders alike, there are ways to keep seen and unseen execution costs down. Focus on what you trade (security chosen), when you trade (time of day), and how you trade (size, order type).

2020 Results

Fidelity and Interactive Brokers (IBKR Pro) once again came out on top, followed by Cobra Trading, Charles Schwab, and TradeStation. Looking across the industry, only 43% of the 15 brokers who participated in our 2020 Broker Review have public web pages dedicated to sharing even basic order execution metrics with customers.

When it came to direct routing options, Interactive Brokers, TradeStation, Lightspeed, and Cobra Trading stood out, thanks to offering customers maximum flexibility. Not only do all these brokers offer level II quotes, but traders have numerous options for direct market routing and can even take full control of their routing relationships if they so desire.

How We Scored

Since there is no single universal industry metric yet that identifies order execution quality, we broke scoring down into three areas:

  • Payment for Order Flow (PFOF) – Brokers earned points for declining payment for order flow with both equities and/or options trades.
  • Transparency – Brokers earned points for displaying relevant execution quality metrics on their websites.
  • SEC 606 Reports Analysis – Using all our wisdom and market knowledge, brokers were awarded points based on our estimated correlation of quality routing versus PFOF.

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Blain Reinkensmeyer

About the author: As Head of Research at StockBrokers.com, Blain Reinkensmeyer has 18 years of trading experience with over 1,000 trades placed during that time. Referenced as a leading expert on the US online brokerage industry, Blain has been quoted in the Wall Street Journal, The New York Times, Forbes, and the Chicago Tribune, among others.


All pricing data was obtained from a published web site as of 01/20/2020 and is believed to be accurate, but is not guaranteed. For stock trade rates, advertised pricing is for a standard order size of 500 shares of stock priced at $30 per share. For options orders, an options regulatory fee per contract may apply.

1$0.00 commission applies to online U.S. equity trades, exchange-traded funds (ETFs), and options (+ $0.65 per contract fee) in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). There is an Options Regulatory Fee (from $0.03 to $0.05 per contract), which applies to both option buy and sell transactions. The fee is subject to change. Other exclusions and conditions may apply. See Fidelity.com/commissions for details. Employee equity compensation transactions and accounts managed by advisors or intermediaries through Fidelity Clearing & Custody Solutions® are subject to different commission schedules.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.

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