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Duration: 5:16

Instructor:

Contributor: Interactive Brokers

Level: Intermediate

This algo allows the user to determine the number of shares to be bought each time the market drops by a user-defined amount. This lesson teachers viewers the mechanics of buying weakness and selling strength according to the configurability of ScaleTrader. As with other IBKR algos, this order type has the functionality to break down large orders into small pieces and minimize market impact. The ScaleTrader also features a Profit Taker, enabling the user to set up a series of buy orders with opposing sell orders that would trigger in the event that the share price regained a user-defined amount after each fill.

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Study Notes:

Interactive Brokers’ ScaleTrader algorithm can be used to maintain a low profile when buying or selling
large volumes of stocks, options, futures, forex, among other asset classes, and is designed to slice large
buy orders in to smaller, more manageable amounts.

Scale orders to buy are designed to execute at ever lower prices, while orders to sell are designed to
trade at increasingly higher prices.

ScaleTrader can be used to trade around a position. In other words, an investor entering a buy order
can, at the same time, create profit taking orders on the same order entry screen aiming to sell at a
profit, portions of the completed buy order at pre-determined prices.

Users may access any available algo in Mosaic from the blue New Window button. Locate More
Advanced Tools at the bottom of the menu and find ScaleTrader from the expansion menu.
Alternatively, from a Watchlist, Monitor or Portfolio tab click right on any ticker symbol and from the
Trading Tools menu select ScaleTrader.

Opening the algo this way reveals an order entry screen. Note the chart of the security that occupies
the right side of the ticket. Use the hyperlinks above the chart to change the timeframe displayed for the
chosen security.

I’ll explain the ScaleTrader set-up for an order to buy 5,000 shares, breaking the order down in to 100
share pieces. I want the trade to execute five-cents lower than the prior fill.

Entering that basic information, and if I enter a starting value, you can see the range over which the algo
is intended to execute. You can also see that I can interact with the chart in order to affect the order
inputs. For example, if I carefully hover the mouse above the bottom line, it becomes double-headed. I
can grab the line and drag it in order to perhaps fine tune the range over which I want the order to fill.
Let’s start over.

Click the relevant Buy or Sell Action button and enter the desired position size in the chosen ticker
symbol. Determine the number of shares or contracts you want the order to perform in the Initial
Component Size field. Values for Subsequent Component Size can automatically be calculated by the
software.

The Starting Price defaults to the current Ask price in the market, but you may alter this at any time. Go
ahead and add a value in the Price Increment field. For the 5,000 position size entered for this particular
stock and using a price increment of 5-cents, you can easily see the range required in order to complete
this order.

Determine the Time in Force for your order from the TIF tab, choosing between Day or GTC. At this stage
your order is ready to Transmit.

For large orders, investors might consider concealing the component pieces of an order by checking the
box to Randomize size by +/-55%. This feature allows users to hide their footprint in the marketplace
from other traders who might wish to take advantage in knowledge of the frequency and size of your
trading pattern. Similarly, for investors wanting to maintain discretion over their market impact,
ScaleTrader allows you to vary the time each order is released. Click the Auto price adjustment box and
enter variables in the size and time input fields.

When you click on the Transmit button, the Scale order ticket will disappear. See the Orders tab in the
Activity panel to view the open order.

Click right on the associated order line and view the progress of your Scale order. The progress view
allows you to see the Open and Filled pieces of your open order, the details of the trade entry and
where the market for the ticker is currently trading.

In addition, you may also modify your ticket. If you make any modifications you will have to Transmit the
trade again.

Position traders might consider the Profit Taking feature of the ScaleTrader algo. Users may check this
box and build a defined opposing side to take profit on the position they are trading. When checked,
enter a value in the Profit Offset input field. ScaleTrader uses the offset to calculate an opposing sell
order once an initial purchase component has been filled.

Users can determine how near or how far the Profit Offset is to the first fill. And they can also determine
whether to repeat the process over and over or just once by checking the box to Restore size after
taking profit. By leaving this field unchecked, the algo is designed to complete each price level only once.
When checked, it will recreate fresh orders once existing ones are filled.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Order Types / TWS

The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.

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