I want to look into leasing a seat on CME to save commissions. If someone leases a seat, do they need to use a special broker or is there any extra work in clearing trades? Can I still use any broker such as AMP, etc..? If making 2k RT a month , than would there be any reason not too lease a seat? I see seats getting leased for $2,500 for 6 months. Thanks.
You can do it at interactivebrokers. Buy the seat from CME then email membership at interactivebrokers.com and they will change your rates.
Ok thanks. I don’t see why anyone who makes 2k+ RT a month wouldn’t lease seat. Do you know what kind of fees, Ibkr, charges after having seat? are there any additional costs?
You have to pay pro market data fees and do not have to pay the NFA fee. What symbols do you trade? If mostly ES and NQ, you can lease or buy the IOM seat. Much less than the full CME.
A US business entity or resident has tax considerations. For instance, SE tax is currently 15.3%. Commission/fee savings alone is not enough to make a determination. Don't forget to include a $2,000 application fee in your analysis.
2500 $ is per month, so it will be about 15k for 6 months. Depending in what you trade the IOM lease might make more sense, especially if your focus is index futures. Pricing is more around 300 $ per month. Like tiddlywins said, dont forget the 2k application fee. But if you make enough volume (2k RTs might be a bit to little, but a good start, but best do your own math and calculate everything). Most FCMs and their introducing brokers will support you with getting a CME memberhsip.
oh ok, Just ES. Thanks, IOM would be much better option. If 2k RT cost $7.6k ($3.80 RT) per month, why would 2k RT be too little? If I'm leasing a seat, what would it cost RT, to execute through most brokers?
The number of sides and the associated costs do not equate to profitability. However, the number of sides and the associated costs per month do affect overall profitability.
Ok, lets do the exact math: All that matters here are the exchange fees, nobody cares about your commissions and other broker fees. Lets take the emini index futures (ES, NQ). Without any membership, you will pay 1.28 $ per contract for the exchange fee. With the IOM membership, you will just pay 0.49 $ per contract. So you pay 1.28-0.49 = 0.79 less per contract. With your 2k RTs (=4k contracts) this would mean that you save 4,000*0.79 = 3,160 USD per month. IOM lease will be around 2k for 6 months, and you have the application fee 2k. So you have fix cost of about 4k if you decide to give it a try for 6 months. 4k/6months= 666 USD/ month. 666/0.79 = 843 contracts. You have to trade at least 843 contracts per month for this to make sense. Thats your breakeven point. So as you can see, your 4k contracts per month can make sense with the IOM membership, but not so much with the full CME membership. Thats why I said 2k RT might be to little. If you would trade 10k contracts per month for example, then both the full membership and the IOM would save you lots of money.
And now that you know your monthly breakeven cost, take it to the next step... Let's say you NET profit 1 ES handle per trade... $50/profit x 2000/trades= $100,000/mth profit. The current blended 60/40 Section 1256 contract US capital gains tax rate is 26.8% The current US SE tax rate is 15.3% ... purchase or lease of a seat causes SE tax to be in effect. Total US tax liability, BEFORE deductions and BEFORE any applicable STATE capital gains tax... 26.8% + 15.3% = 42.1% $100,000 x .421 = $42,100, leaving a NET $57,900/mth profit. Depending on business structure and allowable tax deductions and considerations, it may be better to eat the higher fees. *** It is important note full 15.3% SE tax is valid for the first $147,000. After that, only Medicare 2.9% is applied.