Costs Questions...

[enterthe]

Hey,

A buddy with no trading experience is having trouble getting an entry level job, and is therefore thinking of getting a position in an arcade.

Assuming he can deposit cash if no one will back him initially...

- How much will he need to deposit in order to start trading? I'd heard the minimum is £100k. Is that true?

- What will be the monthly fees for a desk and spread machine (e.g. TT or RTS) ?

- What extra fees will be levied per futures contract (assume he's trading Eurex and LIFFE).

- Will he need a hefty deposit in order to maintain overnight positions? For example, what will he need in his account in order to hold 10 long Eurostoxx futures against 2 short DAX? Will arcades offset LIFFE against Eurex?

Cheers,

Enter

 

[Directional]

the minimum to back yourself is around £20k although you can get part-backed deals at some firms where you put down £5-10k and the arcade makes the rest up to around £50k in exchange for a 70/30 profit split in your favour or so.

Monthly fee's vary between arcades. When I was at Marex, the basic desk, squawk & workstation cost was £750 plus everything on top: £100 for Reuters, £200 for bloomberg, £30 phone, £100 internet PC & streaming TV, extra for multiple or larger screens etc, TT fee's on top - typically £500 or so per month. Configure your desk to suit your pocket.

Fee's your charged per lot will depend on volume. Marex fee's for LIFFE started off at around 48p all in per side for Bor futures if you did less than 5000 per month and diminished for volume down to around 32p a side. Cant remember what Eurex fees were but it was something like 46c a side inc exchange fee. You get exchange rebates credited directly back into your account if you do the volume required to qualify.

overnight positions require full exchange spread/outright margin, generally speaking, although this also will vary amongst shops. At Marex if you're own account they would give you 5x buying power on your account during the day for spreads or outrights, but you'd need to be fully margined if you held overnight.

Dunno about spread margins extra-exchange. If its not an exchange recognized spread qualifying for reduced margin, I doubt you'd get any margin breaks as the arcade would be required to post the necessary margin by the exchanges. Unless you're backed, they wont do that from their own pocket & the goodness of their heart

 

[enterthe]

Thanks for the info Arbitrageur.

Regarding the margining, I'd heard that some primebrokers would let you depot it margin based on value at risk, rather than exchange requirements, as this gets them more business.

Do arcades not do something similar? I'd thought that they might, as the aggregate risk of all their traders would be less than the sum of the risk of their traders' positions, as some would offset one another. Or are the accounts segregated in such a way that this cannot be done?

Also, based on current performance, the percentage return on margin for the current strategy (based on real results, not backtesting) is around 63% per annum. Is such a return reasonable for an arcade trader? Depositing £100k and returning £63k over a year doesn't seem too good considering the risks and costs involved. So maybe my buddy will need another solution. ;{