I've been messing around with IB's TWS demo and I've noticed it says all the stocks are on the SMART exchange even if they're a NASDAQ/NYSE stock??? Googling didn't turn up anything. What's the SMART exchange?

Smart routing for order flow assumingly.http://www.google.co.uk/search?q=smart+ ... broker.com

What it means is that IB will determine at the time of entry what exchange or ECN has the best market and will route it there. If several markets are the same then IB will route it to whichever one they have the best deal with. Also if you use SMART routing IB will send it through their internal dark liquidity pool before sending to an exchange. This is suppose to be a cheaper / better option. For the most part it is but it really depends what you are doing. I use it and have noticed that IBs default exchange for equity options is ISE. So my order was sitting at the ISE whilst if it was at the CBOE it would have been filled. I was filled eventually but I could have potentially missed being filled.$.02

QuoteOriginally posted by: HansiSmart routing for order flow assumingly.http://www.google.co.uk/search?q=smart+ ... oker.comOh silly me, I missed it, must have been buried in the results.

Interactive Brokers internalizes order flow to a company they own called Timber Hill. Essentially what most retail firms do is set their pricing structure such that it is in your favor (in terms of commission and fees) to route orders ?AUTO? or ?SMART? versus sending direct to an exchange. By internalizing orders IB crosses your trade with other IB clients rather than sending to an exchange. What this means is that even though the stock is traded on NYSE for example, your trade will never reach the open market. Timber Hill has internal matching/crossing engines that take your trade first. This is why you will often see sub-penny price improvement when you route ?SMART?. They front-run your trade and if you read the fine print ? your order is essentially handled as a Market order versus a limit to an ECN. IB/Timber Hill looks at your order first. If they don?t like it or want to pass on the trade then they can flash it (they get paid for this) to dark pools, and finally if the dark pools pass on your trade then they send on to whatever exchange has liquidity. All of this takes time and costs you slippage ? which most people overlook because the commissions are lower. Also, your fees are lower but IB makes the spread by charging you the offer to get long and the bid to get short. So every order they cross internally they make the penny spread from their customers while having the ability to front-run your trade via ?price improvement?. If you want to trade on IB you should be ?unbundled?, you should trade direct to an ECN 100% of the time (IMHO, ARCA has the best smart order routing system) and you should get an outside data source because IB limits you to 100 stocks and only sends ?snapshot? quotes every 100ms versus real actual data. I also don?t know if IB subscribes to all of the ECNs or if they just send you snapshot data from a partial ECN list.

I agree with Marine. Sometimes, for illiquid options I smart route them orders that never show up on the cboe order book although they are better (eg I offer at 0.48, best offer on cboe is at 0.50 and I get executed at sub penny increments)