Self Clearing Firms

Discussion in 'Trading' started by traderjimbo, Apr 17, 2002.

  1. I know some of the large prop firms out there are charging as low as .004 cents a share for high volume scalpers -- NYSE and Nasdaq ---- these firms self clear -- my questions is for the biggest firms out there that are able to charge .004 --- how much do you think their cost is ?
  2. And that .004 cents a charge is the total charge - no additional ecn fees --
  3. InyOutty


    Are you sure that repressing your trading losses isn't affecting the rest of your memory??? Cuz I think you must be remembering wrong.

    There are no firms out there offering .004 including ECN fees brother. None. If I'm wrong then name two. You said there were "firms" plural right??
  4. The commission does exist, but my post is not to promote firms or start a commission debate.

    Let me rephrase the question - for a firm that self clears and is doing major volume - say, over 60 million shares a day - does anyone have an intelligent guess as to how many cents a share the firms cost is on NYSE and Nasdaq ?
  5. nm
  6. anyone else have any idea ?
  7. nm
  8. Ahh, the million dollar question.......what does it really cost?

    This is for sure an interesting discussion topic as I am sure we would all like to really know the answer to the burning question of how much our IBs are making from our trading efforts. The answers should be interesting and wide ranging but it is unlikely you will get any truly accurate ones. The truth behind the numbers is a highly guarded secret for the IBs.

    There are no simple answers either because virtually every firm has a different arrangement/ business model and hence the variance in commission rates. A firm's commission has essentially 3 components that make up the total cost;

    1. Software/ execution costs/ exchange fees
    2. Clearing costs
    3. Firm profit margin (from which the firm must cover its overhead)

    As far as clearing costs go I think that there are different clearing rates for different types of accounts. That is, a retail account is subject to a different rate than a 'Prop.' account. I also believe that some firms are able to negotiate clearing based on a per stock per day basis and under such an arrangement it makes clearing costs negligible. This type of arrangement is most beneficial in a 'Prop.' type of environment where several traders may trade the same stock and large daily volumes. I do not know exactly how self-clearing works but I believe that the cost advantages are similar to that of having proprietary software.

    A firm that has proprietary software can set its own per share cost structure and obviously be more competitive on commissions than a firm that must pay software costs to a third party.

    Given all the factors that go into the commission costs that the trader must ultimately pay, you can see why commissions vary so much from firm to firm. Just like every other business, some firms can gain competitive advantages be internalizing certain functions, but obviously it is a matter of scale and for most firms it is more economical to outsource things such as clearing and software.

    I will watch this thread with interest to see what, if any numbers on clearing costs are thrown out there. Should be interesting but I guess the bottom line is that your IB is in business to make money not to give services away for free. He is going to charge what the market will bear and his cost is somewhat irrelevant.

  9. mjt


    There was a pro firm doing a presentation in my city a few weeks ago. The guy presenting said that the firm could cut their commissions in half, in half again, and once more in half, and still make money. The firm only charges a penny per share, so that would come out to 1/8 of a penny per share, once you cut it in half 3 times. I don't know if he was exaggerating, but it makes you wonder how much firms are really charged.
  10. InyOutty


    There aren't any firms (in this star system anyways) that are gonna give you .004 all-in. Period!!! I double-triple-quadruple dare you to prove me wrong by giving me just ONE name!!!! Just ONE Jimmy!!!

    As for clearing/execution costs....the big dogs (Heartlands, Brights, Holds, Andovers, etc.) pay somewhere around 1/4 cent plus pass-throughs. But don't file for your broker-dealers licence just yet. Running a BD ain't worth the hassle. Why deal with the slew regulatory and technology worries, tons of fixed costs, and competitors that will undercut you just to put you out of business?

    Here a tippy: Focus on your trading and leave the BD business to those with economies of scale. You'll make a lot more money with a zillion fewer headaches.
    #10     Apr 19, 2002