One's volume is irrelevant... Only your profit margin matters... In terms of the impact of increased fees.
This is a complex question... Because most algo trading operations... Are not a standalone business model... But an adjunct to a medium size firm's more classic trading. You have to start with what is a MINIMUM professional algo operation looks like ... Say 2 traders (200K) and 2 engineers (150K) plus office, etc (100K)... Plus roughly $20K/month in sub millisecond latency technology (250K)... And you have fixed costs of 700K... For a professional, but shoestring, algo trading operation. If you have 20% profit margins... You would have to make $3,500,000 in trading profit... And pay someone like IB $2,800,000 in commissions... In order to BREAK EVEN. So if you are making 25% return on capital trading at 4:1 leverage... You need about $3.5-4.0 million in capital to support this. And this assumes you are in the Top 5% of "black box" operations... That actually wins in this Zero Sum Game. It takes about 30 seconds to realize... That this is not a viable business model... Because any significant change in the markets or rules... Puts you out of business. In sharp contrast... If you already have a classic, profitable market making operation going... With nice FAT margins... You can run "black boxes" as an adjunct... Because most of your fixed costs are already paid for. IMO... The idea that you can start-up a sub-millisecond latency algo operation... As a standalone business... Is an ET fantasy held by amateurs.
I was not talking about fixed costs, but thank you for your thorough answer. I was talking profits on a per trade basis, and it was actually a sarcastic question to the poster suggesting that profits are measured in cents when they are measured in mills (hundreths of cents). It is certainly not a fantasy that black box shops run standalone sub millisecond latency operations (I'm not talking about some guy running moving averages on TradeStation or Ninja). Classic market making operations dont really exist anymore. The NYSE specialist touch MAYBE 3% of what transacts in NYSE listed securities. Other former market making firms (retail BDs with MM desks) with "natural" flow sell the orders to one of the shops listed below. In fact, AT LEAST 60% of the one sided transactional volume on all US exchanges (equities and futures) runs thru a handful of big black box prop shops (think GETCO, TradeBot, ATD, Citadel and a handful of extremely private firms that only people in the space know about). Most of these firms run passive or liquidity providing strategies and their GROSS profit margins are well inside of the ECN rebates (think 5 to 15 mills per share) in the US equity markets. These firms are self clearing or pay little to nothing to clear trades with a PB. Does't sound like much profit untill you realize that these firms trade between 100MM and 1B shares per day (do the math for the US equity strategies alone). The point is that guys "writing tickets" at 60-80 mills per share dont account for much of the market volume, and the idea that making 1-5 cents per share, while possible for the very best traders or systems in a limited capacity, is not scalable past 1 or 2MM shares a day.
Frankly, I'm all for anything that blows these penny humpers out of the water. They make trading obnoxious as hell.
Well, this sucks. Back to flipping burgers. ...this will take off my yearly income more than one makes flipping burgers... 20-30k. oh well. Good thing I've been taking it easy with the orderbook scalping and making my $800 with 500 shares traded in volume instead of the 500k i was doing before.
What is the SEC doing that they need to raise their fees over 400%? The last thing we need right now is more money going to a government agency.
sorry if this has been posted and i have not read it in prior posts. It is my understanding that this tax is only to cover the SEC operating budget for the upcoming year as it as always been. why is it 5x more this year then last year? well if they are getting a set amount of money for every million dollars traded, then this year when stocks are down 50% they would at least need 2x more money given the same trading volume over 2008. im guessing they think that trading volume will drop off for 2009 so they increased this to reflect this as well. im guessing the sec budget will need to go up becuase of ponzi schemes going on that went undetected. last, dont forget this tax is just where it was a few years ago, it was at record lows for 2008. maybe they did not collect enough money last year and need to pay that debt back?