Cost Structure for CME Futures Traders

Quote from AAAintheBeltway:

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.
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Purchase or lease of an exchange seat promotes trader to dealer status.
Wherein it is written in IRS pub 550...

Self-Employment Income

Gains and losses derived in the ordinary course of a commodity or option dealer’s trading in section 1256 contracts and property related to these contracts are included in net earnings from self-employment. In addition, the rules re-lating to contributions to self-employment retirement plans apply. For information on retirement plan contributions, see chapter 3 of Publication 535, Business Expenses, Publication 560, Retirement Plans for Small Business, and Publication 590, Individual Retirement Arrangements
(IRAs).
 
Quote from osorico:

Hey scalper21:

Wondering... doing 300-1200 sides (150 to 600 RT) a day, what is your "normal" cars per trade?
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around 8 contracts per trade --- sometimes more sometimes less
 
Hey Scalper. Great thread and spreadsheet. Im curious about your physical location when trading. Are you set up from home or are you at the Merc? Im wondering because of speed. I trade the ES from the CBOT building on TT and it seems very fast but even if you were to get a T-1 line at your house would it be as fast? I feel like some of my edge is the speed at which I can get an order in. I know you said you worked at the Merc and I thought u might offer some insight about speed/reliability ect. Sorry to take the thread off subject...you can PM me if you like. thx Jim
 
Quote from scalper21:

around 8 contracts per trade --- sometimes more sometimes less
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Thanks scalper21.

I ask only because I am in process of upping my "norm" contracts per trade... breaking out of a max 5 self imposed rule. Norm minimal (although could be less) for me is now 3, with 8 max.

It's taking me a bit of getting use to for those numbers. :eek: :) :D
 
Quote from osorico:

Purchase or lease of an exchange seat promotes trader to dealer status.
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Do you know of any reference for this? I can't find it anywhere. You're probably right, but since I might be crossing this bridge at some point, I'd like to be sure. Thanks for all your info, Osorico.

Btw, here is the CME's calculation of the benefits of membership:
http://www.cme.com/trading/mem/res/benefitmem3425.html#savings

Aaron Schindler
Schindler Trading
 
Quote from Aaron:

Do you know of any reference for this? I can't find it anywhere. You're probably right, but since I might be crossing this bridge at some point, I'd like to be sure. Thanks for all your info, Osorico.

Btw, here is the CME's calculation of the benefits of membership:
http://www.cme.com/trading/mem/res/benefitmem3425.html#savings

Aaron Schindler
Schindler Trading
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Hi Aaron,

Without locating actual IRS pubs here's a reliable source defining dealer status...

http://www.traderstatus.com/dealer.htm

Be sure not to confuse Securities dealer with Commodities dealer. (commodities dealer def is about 1/2 way down the page.)

Good trading,
Osorico
 
Just to complete the picture, and for ease of reference by ET readers, these are the unbundled IB commission rates for E-mini ES futures:

1000 sides (500 RTs) $2,220
1500 sides (750 RTs) $3,125
2000 sides (1000 RTs) $4,030

The respective monthly costs under a lessee arrangement are $2,310, $2,665, and $3,020 (taken from scalper21's spreadsheet). Upfront costs and tax considerations are ignored, of course.
 
scalper if you trade 1200 sides at 8 contracts avg thats 9600 total contracts in a day? the avg commissions before monthly leasse and tt fee's is an incredible $5640 at 60 cents a contract. how the heck can you make 1200 trades of 8 contracts at a time in 1 day? thats about 8 contracts every 2 minutes all day long. and #2 i just don't see how anyone can overcome those commissions and huge slippage trading that much
 
Quote from joeyata1:

scalper if you trade 1200 sides at 8 contracts avg thats 9600 total contracts in a day? the avg commissions before monthly leasse and tt fee's is an incredible $5640 at 60 cents a contract. how the heck can you make 1200 trades of 8 contracts at a time in 1 day? thats about 8 contracts every 2 minutes all day long. and #2 i just don't see how anyone can overcome those commissions and huge slippage trading that much
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no

the total is a total!!

the excel spreadsheet I use to breakdown the day shows me what my average size is. so i make between 30-150 trades a day. sorry for the confusion.
 
I did this computation recently for a friend who trades the ER2 contract. I amortized the total cost of the seat (best GEM offer lifted + app fees) at 7% for 2 years and the compared it to the cost leasing a seat at the current rates. It is a simple comparison, but the result was that if you traded more than 200 turns per day you would begin to save money by purchasing. Given this conclusion and the rates at which retail traders are charged by IB and others, I would think that it makes sense to buy a seat if one trades 40 or more turns per day in that contract.

The savings are enormous over a month's period if you trade enough. Another way to look at it is to consider that you could fully own a seat after 2 yrs and still save a few thousand dollars if you trade more than 40 turns per day on retail.

This conclusion does not apply to the ES or other contracts since one would need a much more expensive membership to trade those (assuming you are not using an ECM membership).
 
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