nyseat21 took the time to express what I was thinking. I ran/owned an office for a firm and my friend just started one. He has a few good traders and called dozens of places. To get clearing execution and an excellent front end is a chore. He could not come close to .001. That is why I am waiting to see this materialize. Perhaps Vaquero has couple monster traders that the rest can piggy back on. Vaquero if you can do it and be well capitalized, I am sure I know a bunch of people who would be intrested. I know some former market makers dying for a good technique.
If a trader loses his tuition money, does he get fired immediately? If you are taking ANY losses whatsoever, this is doomed. Sorry to be a naysayer, nothing against you personally, if you were a publically traded company with this model, I'm a BIG short. No offense..
It is the change in technology and the internet that enables the new brokerage model to exist... The model that lends itself more towards the customer being profitable is the model that will retain longevity...The musical chairs game is a matter of advertising to newcomers... A major reason that traders fail are high front end costs...which are hidden in the software..commission...training..hardware..and other costs...In the case of daytraders this is usually in the range of 50 to 150% of the initial capital... Another major reason that traders fail is that firms that sell training services are not valid..they cannot even produce daily blotters for a single client... When you implement a business model based on profitability of the customer...this model favors longevity... The daytrading business is fraught with front end approaches...and almost no back end or profit approaches...
I think you are on to something. When I had an account with free market order, I made between 60 and 200 trades a day based upon price action and I made more money than I ever did. Now with the fee at 1 cent per share, its not ever profitable for me to try to scalp on price action.
What about a group of traders starting a truth partnership to get the best possible rates and conditions. say you have a group of 50 traders that can get the best possible rates and everybody gets the base rate. this way there is not one owner but a bunch of traders interested in the firm so they can receive the service from the firm. obviously traders would have to put some decent capital to trade and for the ones that don't have capital the reates will be slightly higher. TradersFoundation sort of thing. Who knows!!!!! maybe one day something like this can happen and we all pay .001 per share.
Zero commissions....profit split....OK, we've done that, and will do that...what else? Sorry to keep doing what may appear to be "bursting your bubble"...but do you really think that all these "models' are not already in place? You still have to have a membership on an exchange, a BD, a Clearing Firm....and enough capital to trade with. How do you think we started ( a long time ago)? We got a few traders together, put together $10Mil, bought a seat, and shared costs. What happens now...(believe me on this)...is that there is no "true" cost sharing....everyone I talk to wants to "screw his buddies"..."ok, now I have 30 guys, charge them X, and charge me Y, and pay me the difference"....same old story...nothing new. If you can develop a co-op, I will give you the names of good, solid contact people at the major exchanges and clearing firms. (I'm serious)....(and, I will wish you the best). Don
I agree with Don everybody wants to make money of everyone else but a true CO-OP is exactly what i have been thinking about this at least for the ones that want to focus only on the trading end of the business would be the best thing.
Thank you for you responses... Tula...you are getting warmer...and indeed...this is no new concept.... Its just that there are far more front end firms and almost no back end or profit centered firms.... Clearing firms...self clearing...business structure...advertising costs....bricks and mortar....software....all of it matters....and there are no barriers to entry for those firms capable of changing to this model... Again thank you for your excellent responses....and we'll keep those that that have an interest up to date....
**Cross posted from another forum, as I believe the content is very applicable here as well ** Hi Vaquero, Your idea of a business model sounds like a good one at first blush, but I'd like to view it another way. As you've probably seen going through this thread, traders employing the Opening Strategy are probably making anywhere from 0.5 cents/share to 3.0 cents/share in a very good month. That's per share traded, not round turn, so the comparisons are direct and don't need to be multiplied by 2. In a bad month, a .1 commission rate plus 20% split looks like a comparable commission charge of 0.2 cents (0.1 + 20% * 0.5 cents gross profit) a very nice proposition. Now, say an average month gets a trader 1.5 cents per share. Now the comparable commission rate looks like 0.4 cents (done as above). This rate is getting fairly close to "industry standard." Finally, a trader having a better month, at say 2.2 cents per share, is paying the equivalent of .54 cents in commission. OK, still workable. So, to get back to your question, I think anyone making on average a gross of 1.5 cents per share on average (an average trade of 3.0 cents) would need some other inducement to move over. Taken from your point of view, I assume, as a business owner, I'd ask a different question of you: Assuming rational "member traders" in a steady-state model will figure out the above for themselves, I'd expect your mature business to look like a mix of newer traders (for whom this is a good deal) and experienced traders making something like 1.0 cents per share on average. So, your overall cash flow model looks like any other prop firm doing business at a 0.4 cents rate. That's quite low. Especially if you are providing some "give ups" to your more experienced traders in exchange for trading and mentoring. Can your business survive given that cash flow? Will you be cutting corners on software, connectivity, support, etc. to achieve this? At the very least, I'd expect these have to be run very lean. Will you be able to assure me that you are financially backed to avoid cash crunches, and adequately protected against "blow ups?"
I may be able to come up with a similar model for futures. $5000 training fee. This covers your software and training. You will be able to trade CME eminis for 2.32/rt and get discounts on other the products of other exchanges. If there are enough people who trade the CBOT we can get a membership there and reduce rates on those products further. 85/15 profit split. Start out on the simulator. Go live with one lots. Your size increase relative to your profits. THIS IS JUST A GENERAL IDEA. I'll have to run this idea past some other people see if we can do it or something like it. Post your thoughts or ideas or PM me. If we can build this your feedback is need.