How To Save Big on Trading Costs And Put Money In Your Pocket

 I don’t own any seats at any exchanges anymore, but I used to.  When I traded Eurodollars ($GE_F) at $CME back in the late 80s and 90s, I traded so much each day that buying a seat paid for itself in one year.  I thought I might share with you part of my statement from last month-and let you do your own calculus.  I have an account through TDAmeritrade ($AMTD), and at the beginning of the month I paid a higher commission rate than I did at the end of the month.  I left out the gross and net profit.  




 TOTAL NFA FEES 36.52-  



I paid $8610.16 in Commissions

Suppose I bought a seat.  For purposes of this exercise, it would be an AM seat currently trading at $80,000 and leasing out at $540/mo.  My assumption is if you bought it-you’d pay cash or you’d put $40,000 down and pay a bank $741.18 per month.  (4.25% interest over five years).  I used the lease cost in my calculation.

Lease        -$540

Clearing    -$404.16

Globex Fee .06*3274=$196.44

Exchange Fee .31*3274=$1014.94

Front End      -$450  (CTS, Cunningham Trading System; they charge .20 per contract up to a cap of $450)

EMini Globex Fee .76*264=-$200.64  (breaking out and calculating full retail here because I don’t own/lease a B-3 at CME)

Commission 1.1*264=-$290.4  (same as above)

132 round turns in the S&P Emini  ($ES_F)

1637 round turns in the CBT T-Bonds ($ZB_F)

Net difference is $5489.54 ($65,874.48 per year in my pocket)

That’s quite an economic incentive.  However, it’s not so simple to execute.

What if you were a newbie and didn’t know anyone to talk to?  What do you do?  If you are a customer of a large retail brokerage they might help you get a seat-but they are still going to charge you commission so you don’t save that much-only exchange fees.

CME doesn’t make it easy either.  It is hard to navigate their site to find memberships, let alone find the leases for them if you aren’t familiar.  Then there are all the fees the exchange larders on to go through membership.  There is a $2000 application fee to do paperwork for example.  You’d think an electronic exchange could code a software package to save you time and money on the process.  Sounds just like a government agency!

Not only that, CME’s fee structure would be the envy of the Byzantines.  To say it’s complex is an understatement.  CME doesn’t have an economic incentive to encourage traders to become members since commission that they collect would go down.  For example, in the E-mini if you are a retail trader, you pay $2.40 to the exchange.  If you were to lease a seat, your fee goes down to $.785.  If you own, $.555.  The difference between retail and member rates is significant.  Typically, futures brokerages charge less than retail brokerages as well, so that is another cost savings.

If you trade a fair amount, you need to contact a futures firm to establish a brokerage account.  I use Shepard, and I have used them for years.  (312) 341-7888 is their number. It’s a small boutique firm with high service. There are plenty of other clearing firms like Dowd-Wescott, RJ O’ Brien, Rosenthal-Collins, and FC Stone.  The futures firms will help you get a seat.  If you lease or own a seat, you might not have to pay NFA charges either, another cost savings.

There is a seat cartel at CME that has existed for over 20 years.  They used to try and control the supply and demand for seat leases.  At CME back in the days when trading was only open outcry, the broker groups that dominated the floor broker industry would try and hold seat leases down so they could trim their fixed costs.  They were at odds with the equity owners that wanted the highest price possible for seat leases.  Today, if you own a seat and want to lease it out it’s almost impossible to do without going through the cartel.  You have to pay them at least one month’s seat rent for the honor” of using the cartel.

At the CBOT there is a formula they use to calculate seat leases based on the sale of the actual seat.  Leases at CME can be weekly, month to month or in other permutations.  At CBOT you have to give 30 days notice.  I don’t know NYMEX/COMEX lease policies, but you do save money leasing versus retail.

The CBOE is a whole different ball of wax and I hope someone leaves notes in the comments how to save on trading costs there.  I honestly have no idea and can’t figure it out from their website.

CME never attempted to smooth over the differences between the two exchanges when it bought them.   I always thought this was a strategic misstep.  It also hurt seat owners that traded.  There was no benefit to them when CME decided to buy another exchange.  If you owned at CME, you had to pay full retail at another exchange and vice versa.  CME should have set up some sort of cross exchange price for equity owners equal to the electronic rate.   Instead of breaking down barriers-they kept them up and made it even tougher.  The reason is to extract more profit out of traders using 1st, 2nd, 3rd degree price discrimination.  CME also doesn’t get any revenue when a seat is leased, so they have zero economic incentive to do anything about it.

Since the MF Global debacle and Dodd-Frank, it’s become more arduous to set up an account.  Now, there is a lot of paperwork and you have to put a decent amount of money in your account.  That’s why I think retail brokers like TD Ameritrade and Schwab would be smart to set up clearing operations directly at CME.  I think they could get a lot of business because you’d have all your money in one place to allocate for various trading activities.  If CME were smart, they’d recruit them.

If you are trading 10 emini round turns a day, you should be leasing (That’s trading 220 round turns per month).  Leases are $300/mo.  The cost savings is $1.61 per contract or $3.22 per round turn.  I just thought I’d share you the difference.  Hope it helps you cut your fixed costs.  Leasing or owning could mean the difference between profit and loss for a lot of people.  You are taking all the risk, you might as well reap the full benefit.  There are a lot of hoops to jump through but for many traders it’s probably worth it.

 Would be helpful if equity owners that read this blog weigh in below.

The Latest

  • Titles Don’t Matter Anymore
    Posted by on July 2nd, 2015 at 7:52 am

    When I was younger, titles impressed me.  I have met all kinds of people in my life.  The chattering class is all about titles.  But, […]

  • Greece: How Did We Get Here?
    Posted by on July 1st, 2015 at 7:35 am

    In case you are wondering, Greece is a classic case.  The country reminds me of the line, from Ernest Hemingway “How did you go bankrupt?” […]

  • Are Precious Metals Manipulated?
    Posted by on June 30th, 2015 at 8:11 am

    I read this and posted it.  As a Chicago trader, the stories we heard about the COMEX floor were legendary.  By legendary I mean about […]

  • Greece and Traditional Hierarchy
    Posted by on June 29th, 2015 at 8:31 am

    The Greek people have lost all hope. They feel like they have nothing. Banks are shut down, and they are unable to wire money anywhere. […]

  • Greece and the US
    Posted by on June 28th, 2015 at 9:46 am

    The high drama in Greece is happening now.  It’s pretty hard to predict what’s going to happen.  Markets aren’t open right now, so it’s hard […]

  • If You Are Successful, Sometimes You Will Piss People Off
    Posted by on June 27th, 2015 at 7:25 am

    This made me smile for a lot of reasons. First, I was a judge at Startup Weekend when Jimmy presented WeDeliver as a “company”.  It happens, […]

  • Uh, Has Anyone Noticed the Bonds?
    Posted by on June 26th, 2015 at 8:54 am

    My whole career has been investing. I started working on the floor of CME in 1986. I haven’t been right all the time. I have […]

  • Entrepreneurship is About Overcoming Obstacles
    Posted by on June 25th, 2015 at 9:02 am

    This story of entrepreneurship from long ago came up into my Facebook feed.  It’s a great read, and the lessons of it hold true today. […]

  • A Presentation Dream
    Posted by on June 24th, 2015 at 7:07 am

    Suppose you were going to talk to a group of people about startup investing.  They were familiar with the words startup investing, and they had […]

  • The Confederacy is Dead, But Memorabilia Isn’t
    Posted by on June 23rd, 2015 at 4:29 pm

    Yesterday I penned a post saying that I believed the Confederate flag should be taken down anywhere it flies in a government space.  I feel […]

  • Farmers and Free Enterprise Win
    Posted by on June 23rd, 2015 at 8:17 am

    Yesterday, the Supreme Court ruled that raisin farmers can sell their entire crop.  That sounds so obtuse and idiotic on paper for a society based […]

  • Get Rid of The Confederate Flag Now
    Posted by on June 22nd, 2015 at 5:02 pm

    Since the tragic Charleston shootings, there has been a call to stop displaying the Confederate flag.   I don’t think that there is any cause/effect […]

  • Success is A Lousy Teacher
    Posted by on June 22nd, 2015 at 9:01 am

    I stole the headline because it’s so good.  I also love what Mr. Crawford has to say.  Apologize, but there isn’t any other way to […]

  • Gold Price Manipulation, Bad For Markets Bad For Gold Companies
    Posted by on June 21st, 2015 at 10:14 am

    Don’t know if you caught the Nanex and Zero Hedge bit on price manipulation in the gold market ($GLD).   This is one manipulation that […]

  • A Fantastic Meal
    Posted by on June 20th, 2015 at 9:38 am

    One of the things my wife and I have tried to do since we got married was go to great restaurants.  We both are foodies. […]

  • Separation
    Posted by on June 19th, 2015 at 6:54 am

    Was in a yoga class the other day.  One of the things the yoga instructor said was, “When I do my daily practice at home, […]

  • Does The Sharing Economy Create Employees?
    Posted by on June 18th, 2015 at 7:18 am

    Yesterday a California regulatory agency ruled that Uber drivers were employees of Uber.  This is a big leap of faith in intellectual logic on the […]