The $7.50 slippage I refer to in the following quote: If you can save $7.50 per Emini S&P transaction in slippage due to a .10 tick increment vs. .25 - how would that be less urgent/important than saving $2.80 in CME fees? .....refers to the possible saving per emini contract traded if the tick increment was made .10 or on par with the pit contract. (.15 X $50=$7.50) and yes I do consider this "slippage". Capture the spread in the emini? - sure, if you have some kind of CME membership and a Globex terminal. But I'm not a scalper doing hundreds of contracts a day, so the CME license fee would cost me more than the .15 slippage per contract I experience due to the inflated .25 tick increment.
Do we really want to start screwing with the liquidity, in what could could turn out to be a long, secular Bear market? I just think that is BAD idea right now. I would like to get trading costs down too. But I sure as hell do not want to risk shooting myself in the foot to do it. I have to agree with the Arbs, for the time being.
That's your firm's #'s. Don't know if they are telling you the truth and how much of the pit % they are backing (maybe for them it is true but they back a small %) When I was on the CBOT I saw an incredible turnover in the short time I was there. The Co-Owner of Lynx used to be in the S&P pit -I bet he can verify what I'm saying too. Average #'s can also mean a big thing. Average stock broker's salary was about $150,000 a year when I was a broker years ago. That means 5% are earning a few million and 85% are earning about $15,000- $40,000 . That top # can really throw off an average. YOu need the full picture of what everyone was earning....not the top 2 guys. Robert
I don't believe that $540K number either. The handful of top traders really skew the rest of the numbers. And I do mean only a handful. You certainly couldn't say that abou the bond and note pits at the CBOT. There are hundreds of newbies every year that walk into a pit, deposit their money, and leave after three to six months. The 90% failure rate applies to the pit as well. To succeed in the pit, you have to be near order flow, and only a couple dozen out of maybe a few hundred traders are near any real order flow. There is alot of paper to paper order flow in the pit these days. That is why I migrated from the pit to the screen. I got access to more order flow.
a certain tick size is important for liquid markets. people who trade the bid/ask spread make immediate fills without excessive slippage possible. these people need to recover from adverse selection costs, order processing costs and storage costs ( i know i don't use exactly the right words, but you know what i mean). It's actually proven that if you make a market's tick size smaller, it will become costlier for maybe all but the smallest market participant to get an immediate fill, because the bid/ask spread traders are driven out of the market. think about the dax versus the eurostoxx50 on eurex. the dax has twice as small a bid/ask spread (.5 point against 1 point), while trading at a higher point value 3,500 against 2,500 roughly. try to get a fill on 10 contracts. this will often cost you a slippage of more then one point (depending on the time of day) and sometimes a lot of points, while an equivalent amount of 30 contracts on eurex will almost always cost you a slippage of just one point. dax volume is a little less than the equivalent esx volume
Tea I just read your post above again Average gross profit. Yikes. Gross means nothing. As what if their cost is $480,000?? I'm interested ONLY in NET. Losing traders usually talk about gross Winning traders usually talk about NET.
I'm just reporting what I was told by a financial guy at this particular firm. He didn't have any reason to lie. It wasn't him doing the trading. I don't know you and I don't have anything against you, but you are making a lot of generalizations that aren't supported by anymore than your guess. As I stated in an earlier post, the hundred plus pit traders backed by this firm represented a good mid-level cross section of pit traders. They don't have a lot of newbies, but then they don't have a lot of big traders who would skew the figure. The big traders don't need to be backed by a firm. This information is about 3-4 years old. And yes professional traders and professional firms do pay attention to gross as well as net profit. Subtract the two and you get your costs. They were ruthless about controlling their costs.