T2W Trading Community

What are liquidity provider rebates for Arcade traders?

Due to the huge amounts of volume an arcade will execute, the firm will be registered as a liquidity provider with the exchanges that it trades with. Individual traders can benefit from what the exchange calls liquidity provider rebates which is where the exchange refunds part of the exchange fees on a sliding scale based on how much volume or liquidity the trader provides to the markets.

These refunds start from around 5000 lots traded in a month. For a trader doing even average pro volume in a month, the rebate can add up to many thousands, or even tens of thousands of pounds that are credited back directly into the traders account.

Who would use an Arcade?

Trading arcades largely took over as the venue of choice for locals, brokers and professional traders where the exchange dealing floors in London left off when LIFFE closed the pits.

Most traders involved in trading professionally, for a living, or as a broker would find advantages in a trading association with an arcade. For new traders and those who wish to make a start in the trading industry, an arcade is an excellent place to learn many of the strategies used by the pro's and many arcades offer training and funding schemes for graduates.

Are all Arcade traders self employed?

As a majority rule, this is almost always yes, even if trading the firm's capital as a funded trader. Traders will usually be considered as external self employed consultants who make use of the arcade facilities for a fee. There are obvious tax advantages available for prudent traders in this arrangement when considering the sums of money involved.

What about Arcade training and graduate schemes for new traders?

Some Arcades will also train and fully fund a new trader using the firm's capital. Arcades will generally only accept graduates although there are no fixed rules in this regard.

The Arcade will have a particular approach to trading that they know works well and where they can precisely quantify the risk/reward to the business. The trader will undergo an extensive training period, typically lasting several weeks or months. This training will include learning the Arcade's in house techniques and practicing it on an execution simulator. When they can show consistent simulated profits, they will be funded and started on the market for real initially with small size but scaling up as they prove themselves profitable.

Training might take two or three months before live trading at which a new trader may not show consistent profits for six or nine months. He should anticipate being break even or profitable within the first year, and that being the case the second year should be a good year for both the trader and the arcade.

In return for providing the training, risk capital and either a basic wage, or a capped withdrawal from the firm funded account, the new trader will be expected to honour a contract to trade with the firm for two or three years. This way the Arcade can expect to recoup its losses in training the trader, funding his basic wage and trading capital plus cover his initial losses. The profit splits under a training and funding deal will generally be more like a 50/50 split, which for a trader who is being shown how to take consistent money from the market at no risk to his own money is a very good deal.

At the end of the contract, a trader can renegotiate his terms if he wishes to continue trading the firms capital or he may have enough money in the bank to trade as a self funded trader if he wishes to risk his own money.

Demand for these funded trader positions is always high, Arcades have great difficulty selecting from the hundreds of applicants for each new position.

Pelican West trading station

What trading methods do Arcade traders employ?

Professional traders will usually either be directional scalpers or spread traders (nothing to do with spreadbet). Generally, both approaches will be trading large size often for just single ticks by trading off both sides of the bid/ask in the same or different markets.

Spreading is a type of arbitrage approach where the trader is both long and short two similar or correlated markets at the same time. This type of trading qualifies for large margin breaks from the exchanges due to the more limited risk of these positions, so a spread trader can be working orders of 100 contracts for perhaps the same margin as would be required for an outright directional long or short position with just 10 contracts.