Cost Structure for CME Futures Traders
- Thread starter scalper21
- Start date
IMO, virtues of membership, or not, comes down to annual PnL, not commission.
As was pointed out, with membership comes SE tax (15.3%). To minimize SE tax, one trades via an entity. Trading via an entity also unlocks other (non SE) tax benefits. In order to make use of the tax bennys, one needs to have significant income.
After determining tax deductions with and without membership, as sole proprietor (or de-facto general partnership) and entity, decision comes down to annual gross PnL... commission savings alone will not have the desired affect, for most reading this thread.
In my case, benefits of membership would not make sense until gross (consistent) annual PnL of 250K minimum. Your mileage will vary based on your lifestyle... the more frugal your life, means lower gross annual PnL before benefits can be seen.
BTW; Scalper21, you are insane not having at least fair knowledge of taxes! I have respect for your posts...But turning the reigns over to some unknown for such an important aspect of our business? Come on.
As was pointed out, with membership comes SE tax (15.3%). To minimize SE tax, one trades via an entity. Trading via an entity also unlocks other (non SE) tax benefits. In order to make use of the tax bennys, one needs to have significant income.
After determining tax deductions with and without membership, as sole proprietor (or de-facto general partnership) and entity, decision comes down to annual gross PnL... commission savings alone will not have the desired affect, for most reading this thread.
In my case, benefits of membership would not make sense until gross (consistent) annual PnL of 250K minimum. Your mileage will vary based on your lifestyle... the more frugal your life, means lower gross annual PnL before benefits can be seen.
BTW; Scalper21, you are insane not having at least fair knowledge of taxes! I have respect for your posts...But turning the reigns over to some unknown for such an important aspect of our business? Come on.
My accountants clients are primarily traders. He understands the business. He was an options trader before he did taxes for traders.
Thank you for adding your opinion about the topic. It is helpful that all the traders on this board understand all the costs/benefits of CME membership.
I trade 300-1200 sides a day. My only option is trading as a member.
I disagree. It does come down to commissions for any trader averaging more than 50 contracts a day. Lets take a trader averaging 100 contracts traded a day. This trader would save 1800 a month! That is 21,400 saved a year. A trader has to be profitable before he has to worry about taxation.
Yes, trader must be profitable before worrying about taxation. But ...
1) 1800 mth/21400 yr savings based on what?
2) It is entirely likely that membership and associated execution costs + legal costs + SE tax + other "professional" costs will negate commission savings.
Not directed at you scalp, but personally, I think too many non-consistent traders make the mistake of doing all sorts of (silly and sometimes stoopid) things to reduce costs. The fact is, PnL must be consistent and must warrant additional expenditures. To incur 21400 in taxes/expenses to "save" 21,400 in commissions only makes sense when you can take advantage of other bennys the added costs enable.
I haven't researched this, but my understanding was that self employment taxes are not due on capital gains income. If you file your trading income on Sched C as business income (and therefore deduct all your expenses), then maybe it's a different story, but before i paid SE, I'd either research it carefully or run it by a tax accountant with experience in the area.