How to start your own broker/dealer firm

[WinstonTJ]

Quote from rmorse:

I hate to correct people on the threads, but 1/2 mil is .0005 per 1000. So if I buy 1000 shares it would cost $0.50. 5 mils or .005 is closer to what firms like IB charges.

The funny thing is, just 2 years ago it was common for day traders to pay over .01. These lower rates are all very new to most traders.

I have always heard one mill to equal to one penny per thousand or $0.00001/1000shs. For example if I pay 25cents per thousand shares that would be 25mils. I stand corrected if that is the wrong way to describe it or if I am misunderstood - but I was serious about the rate of 1/2 penny per thousand shares or $0.000005 per 1000 shares traded.

If 1/2 mil is 50c per thousand then 1 mil is $1/1000? Maybe its possible that different shops use the same reference with different numbers behind it... For example, I spoke to someone at Lime the other day and they said paying 17 mils all in is very cheap - by your reference 17 mils per 1000shs would be $17/1000 shares... which is crazy expensive. Both of us seemed very much on the same page when referencing prices for execution and clearing arrangements through Lime so something isn't adding up for me here.

 

[WinstonTJ]

Quote from rmorse:

So, you have been paying $0.20 when you buy 1000 shares for 7 years? I've spoken to many prop firms over the past few months getting to know them. The rates THEY pay that they mark up to their traders is higher than that, and they are CBSX members buying bulk rates.

If your zero is in the right place, good for you. Even $2.00/1000 is much lower than most active trader pay unless they are doing Big volume.

After reading this I think you are pretty far off base. Anyone who trades more than 50 million shares a month can get execution and clearing down below $0.20 per 1000 shares traded. Quite often depending on who you use as service providers the preferred clearing firm will waive clearing costs/rates as well.

50 million shares per month may seem high for an individual but it is very much within reach for a prop firm. It seems like your reference to an active trader is anyone over PDT rules...??? Any prop firm with 100+ traders should easily be able to reach these rates. 100 guys (or girls) at 30k shares a day = 3 million shares a day... 60 million shares a month.

 

[rmorse]

Quote from WinstonTJ:

I have always heard one mill to equal to one penny per thousand or $0.00001/1000shs. For example if I pay 25cents per thousand shares that would be 25mils. I stand corrected if that is the wrong way to describe it or if I am misunderstood - but I was serious about the rate of 1/2 penny per thousand shares or $0.000005 per 1000 shares traded.

If 1/2 mil is 50c per thousand then 1 mil is $1/1000? Maybe its possible that different shops use the same reference with different numbers behind it... For example, I spoke to someone at Lime the other day and they said paying 17 mils all in is very cheap - by your reference 17 mils per 1000shs would be $17/1000 shares... which is crazy expensive. Both of us seemed very much on the same page when referencing prices for execution and clearing arrangements through Lime so something isn't adding up for me here.

17 mils is .17/100 shares. Stocks are quoted in .01, or $1.00/100 shares . So, 50 mils, or .005, round trip would be break even if you buy a stock at 20.00 and sell it at 20.01. 25 mils, or .0025, is a good rate, but it relates to .25/100 shares, not 1000 shares.

I could be wrong, I still think it is possible your off by one "0."

 

[swiftmike99]

Quote from rmorse:

So, you have been paying $0.20 when you buy 1000 shares for 7 years? I've spoken to many prop firms over the past few months getting to know them. The rates THEY pay that they mark up to their traders is higher than that, and they are CBSX members buying bulk rates.

If your zero is in the right place, good for you. Even $2.00/1000 is much lower than most active trader pay unless they are doing Big volume.

Actually my firms rate is lower but they have about 130% markup on my clearing. They do take a big cut out of my profits but they do provide capital.

 

[Crispy]

Quote from veryFatcat:

I would like to start my own B/D firm so I can save on the fee's that I pay for my broker. what I want to do is have my own online trading platform.

what and where should I start? I need help

Factor in bonds, lawyers, chief compliance officer and keeping up with rules and regs and your commision saving scheme is toast.

Trust me, unless you`re after customers biz your wasting time.

All in you`re looking at 7 figs just to get the ball rolling.

 

[WinstonTJ]

Quote from rmorse:

17 mils is .17/100 shares. Stocks are quoted in .01, or $1.00/100 shares . So, 50 mils, or .005, round trip would be break even if you buy a stock at 20.00 and sell it at 20.01. 25 mils, or .0025, is a good rate, but it relates to .25/100 shares, not 1000 shares.

I could be wrong, I still think it is possible your off by one "0."

Well I suppose I don't need to come in here and argue - I'll stop talking in "mils" and start talking pennies per thousand shares traded.

There are shops out there (like LEK) that will clear for $0.005 per thousand shares traded. I don't see why anyone would want to start a BD to "clear for less". Even with a crappy borrow list and OK overnights 1/2 penny per 1000 shs is as close to free as it gets.

 

[rufus_4000]

Quote from WinstonTJ:

Well I suppose I don't need to come in here and argue - I'll stop talking in "mils" and start talking pennies per thousand shares traded.

There are shops out there (like LEK) that will clear for $0.005 per thousand shares traded. I don't see why anyone would want to start a BD to "clear for less". Even with a crappy borrow list and OK overnights 1/2 penny per 1000 shs is as close to free as it gets.

The numbers mentioned here by Winston are least what I know of as some of the lowest rates. I have seen .5 mils (5 cents per thousand) with full pass thrus, this wasn't just in the last 2 years, this goes back at least 5 years (when I left the sell side). Right now I believe if you talk to Penson starting off with 50M shares / month, they would offer you 1 mil, and you negotiate down to maybe .5, and I believe ML Pro or Fortis would match that rate, not sure about GSEC, been a while since I sat in those rates meetings (boy this brings back rate sheet memories).

I do own a B/D, as a member of some exchanges, and it doesn't have to be a huge hassle (my clearing firm takes care most of the filing work). And there are ways to become a B/D fairly quickly, just talk to a clearing firm, their membership department will give you the basics. Do they still do JBOs anymore?

 

[rmorse]

These "customers" of Lek or Penson or ML Pro, that say they are offered these great rates for going direct, without a BD, I'd like to see one of them post one page of activity on the forum that shows they are able to get that rate, 5 mils or less, for a DMA route including execution and clearance before rebates.

With that said, some of you are saying your hearing some people are getting, to pay .5 mils. I don't see why the clearance firm would take the risk and cost of doing business with any customer at that rate, even for 500MM shares per month. The prime broker risk on the account is too great for that price.

I'd like to see one day of activity, otherwise I don't believe it.

 

[rufus_4000]

Quote from rmorse:

These "customers" of Lek or Penson or ML Pro, that say they are offered these great rates for going direct, without a BD, I'd like to see one of them post one page of activity on the forum that shows they are able to get that rate, 5 mils or less, for a DMA route including execution and clearance before rebates.

With that said, some of you are saying your hearing some people are getting, to pay .5 mils. I don't see why the clearance firm would take the risk and cost of doing business with any customer at that rate, even for 500MM shares per month. The prime broker risk on the account is too great for that price.

I'd like to see one day of activity, otherwise I don't believe it.

That's fine, note I didn't say those "customers" are without BD. And we are talking about clearing only, not clearing and execution. We are talking about Apples and Oranges here, since the person who started this topic wants to know about B/D rates, this is what B/Ds are getting, that's all.

I happened to with one of those Firms that was mentioned above, so I would know what kind of rates that was offered. Look, you guys at Victor probably have a nice business being an introducing broker to Penson and ML Pro, and that's great. But for those who wants to get a group together, they should know the rate differences, that's all I am trying to differentiate here.

Just as an aside, yes, I am now a customer of those clearing firms, and no I didn't negotiate for the lowest rate, but that's largely due to the history and relationship established. But even then, it would be difficult for me to do my business (high frequency systematic trading) at what you said 50mils, or even 20 mils.