Cost Structure for CME Futures Traders

I wonder if the price to lease a seat will go up because of the attention from this thread. IDEM is cheap to lease last I checked. Sometimes I wonder why guys trade high volume on SPY when they can trade the ES with less money and better taxation structure,(unless of course they are trading for rebate commissions and are trying to scalp the tighter spread, or there firm doesn't offer futures.) Am I right?

http://www.elitetrader.com/vb/printthread.php?threadid=46312
 
Quote from FuturesTrader71:

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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I bought my GEM seat at the beginning of April. It was the best thing I could have done.
 
Futurestrader..........thanks for the cost info........you seem very knowledgeable............is the ECM program coming to an end or will it be renewed???? thanks in advance
 
Quote from jim c:

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
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I traded at the Cbot for quite a while. I traded also at CME. I now trade at home and have for the last few years. I was trading the ES back then and now I am back trading it again this year. I trade just as fast on a high speed cable internet connection. I was worried at first but could not hardly tell a difference and still cannot. Just alot less noise. But not going into an office everyday is something you may want to take your time to adjust to. Changing enviroments is challenging in any business ---especially this business.

And all YM traders that a trading volume can buy themselves a seat on ECbot to trade it. It had a rock bottom price and probably still does. But make sure you compute that Self employment tax ---do the numbers.
 
Quote from larrybf:

Futurestrader..........thanks for the cost info........you seem very knowledgeable............is the ECM program coming to an end or will it be renewed???? thanks in advance
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I'm a member of the CME yet they don't seem to release that info. Current expiration is Dec 2006. Original expiration was October 2005. I am not sure if this will be continued or not. I believe, from a business perspective, the exchange will either have to provide some creative leasing options, continue the ECM (which, by the way, is still very expensive considering the total incremental cost of being a member) or eliminate many of the retail traders from trading it. The cost without the ECM is around $2.56 (haven't looked for a while) per turn at non-member rates. Hence, this adds $1.68 per turn to the retail guy. This will result in a drop in volume but I don't know by how much.

On the other hand, the ECM was a way for the CME to promote FX and Index trading on their exchange. Given the growth of volume year over year, they might not need to promote any longer. The ER2 volume is very healthy and the 6E contract is very popular now.

I hope they continue the program. While they continue this program, though, they undercut the members who have or are paying for seats to trade the same products even though we pay much less.

Sorry I can't be specific. I just don't know.
 
If you are leasing a seat, is that considered to be the same as ownership? Does the self employment tax apply to leasing?
Thanks
 
If you lease/buy the seat in the name of a corporate entity, does it have to be a non-pass through in order to avoid SE tax?

Assuming you have a single member LLC treated as sole proprietorship for tax purposes, if you lease the seat in the name of your LLC, are you still liable for SE tax?
 
1258(d)(5)(B)(ii) Commodities Trader. --
The term 'commodities trader' means any person who is a member (or, except as otherwise provided in regulations, is entitled to trade as a member) of a domestic board of trade which is designated as a contract market by the Commodity Futures Trading Commission

"entitled to trade as a member" includes leasees.



Futures contracts and options traded by commodity and options dealers are generally called " §1256 contracts" for tax purposes. Gains and losses of a commodity and options dealers from trading §1256 contracts are treated as capital gains and losses, and net capital gains are treated as self-employment income for FICA purposes.

If you have a biz you can take a reasonable salary, pay SE tax on it and take the rest in corp profits (dividends) and not pay SE tax on the dividends. If you try to take 15k in salary and 200k in dividends , thereby attemping to avoid SE tax on most of the income you will end up in court. You will notice they have neatly assigned SE tax to ALL 1256 contracts meaning that you pay SE tax on all profits generated from trading futures no matter what the legal structure of the trader/ trading entity if you are deemed a dealer.. There are different rules for each state re: expenses for the entity and taxation. You must deal with a pro tax atty/ accountant who is familiar in your state of residence. The expenses of an entity can vary hugely.

Bottom line is there is no easy way out and most people are better off trading as an individual and buying strong home owners/ auto liability policies. The essense of a corp is simply limited liability, protecting assets. LLC is an acronym for limited liability co. Corps are an ongoing expense, completely understand what you are getting into from a proffessional before you leap.
 
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