Day Trading & Forex Forum

• Infrastructure: A commitment to full-time trading also requires a commitment to invest in the best hardware and software that are available.  A trader needs every advantage in a fast moving market and with more traders competing against each other than ever before, you can't expect to be a competitive participant in today's electronic marketplace by using an outdated machine, unreliable software with inadequate screen space and a slow connection.  As a result, the initial outlay costs associated with setting up a comfortable, reliable trading desk with access to the best hardware and tools can be very high. The ongoing costs of the best data feed, software subscriptions, maintenance and support can be higher still.

  The buying power of an arcade again comes into play: The high cost  of infrastructure such as high quality workstation, multiple screens, datacenter, subscriptions to professional software such as CQG, TT X-Trader and Bloomberg Terminal, in-house computer technicians, multiple failsafe data lines and uninterruptible power backup can all be combined and work out extremely advantageously on an individual cost per trader basis.

  The advantages of having the best hardware, software and support at prices unavailable to individual traders speak for themselves and provide the second biggest advantage for arcade trading.

• Support: Many arcades will run an Analyst desk where a market analyst(s) will provide live commentary and interpretation of news and fundamental data. Often these will have sources who can get news releases early and put out trade recommendations before major announcements. Additional backup comes in the form of onsite computer technicians & IT support who make sure you don’t have system problems, and can fix them quickly if you do.
  
• Environment: Clearly, working in a dynamic environment surrounded by other experienced traders is going to be beneficial to anyone serious about trading. Experienced traders can always give you tips if you are following an arcades in house methodology, and the atmosphere and buzz can help a lot with perpetuating that essential traders mindset. Offices are often a spacious, trendy, well equipped environment with trader comforts such as lounges, rest/sleep zones and playrooms with pool, arcade games and perhaps a sandwich bar.

What does all of the above cost?
The cost of renting a seat and using all of the associated services will vary greatly between arcades, depending on what services they include in your desk/office package. A typical monthly cost might range from under £1,000 for one exchange up to £2,500.00+ for five exchanges or more. For a retail trader or someone uninitiated to professional trading and the costs involved, this might sound expensive but when compared to what a pro trader would have to pay anyway just for using the same software alone, excluding all the hardware, the other support services and the office costs, these sort of costs are usually a very significant saving! As an all inclusive package, a competitively priced desk fee is always a great value deal for a professional trader.

An arcade generally does not make much, if any, money from the monthly desk fee these fee's cover the significant running costs and, if competitive, are not an earner for the company.

How does the profit split work at an Arcade?

Generally, if you as a trader make use of the arcade's additional leverage facilities, either to fund the full margin requirements for an overnight position or for your intraday activities then your agreement with the firm will include a pre-agreed share of trading profits for the arcade. This share will vary depending on the facilities you make use of, but it might be around 10-20% of end of month profits for the arcade.

If you are a fully self-funded trader and you do not use the firms capital, then a profit split does not apply, but if you do make use of the firms capital and put that capital at risk in your trading, then of course the arcade will be entitled to a return for its risk in making that facility available to you.

How does an arcade make its money?

The cost of running the office, providing the equipment, data and software services will be covered by the desk rental fee.

The main income stream will be via brokerage services where the arcade provides ultra-discounted commissions to the trader by means of its combined buying power, and includes a margin for the business in the final roundtrip cost.

Another source of income is via leverage and margining services where the firm will fund or part fund positions, and take a pre-agreed percentage of trade profits in return for its risk.

Lastly, Arcades will benefit from funding and training their own traders to trade the firms in-house methodology and capital.

Refco Trading Services, typical trader workstation (click to enlarge)