So looks like a few topics:
Do fees of an exchange and bid/ask spread of market makers, and market makers paying less or no fees make trading on any exchange gambling?
Gkishot....Agreed, whether it be CME, CBOE, Nadex etc.. exchanges make fees and market makers make bid ask spreads. Though to say that there are fees for doing business does not make that business gambling. Lack of risk/reward measurments, lack of statistics, lack of a business/trading plan etc.. are what lead to gambling. Total side note.. but Phil Helmeuth is a professional poker player who has one 13 world series of poker championships. That was not done by gambling luck. Are there poker gamblers? Yes of course most in fact we would agree are. But how is he not and they are. He knows how to read the players (markets), has a system (on a pair of 7 and > i will stay in before the river drops) [enter when this happens exit when this happens etc..], knows statistics based on cards in his hand and those showing (probabilities etc..), and money management such as only go to a table on limit with 20x the limit amount of cash at hand (risk management profit management). The casino getting a fee and a piece of every pot and tips to the dealer etc... do add up but they intand of themselves are cost they do not make it gambling. Trading on anything is gambling without the proper plan in place and with it pushes you closer to being a professional trader.
Does a market makers existence mean they are in competition with you or do they help you?
As stated Market makers have a contractual obligation to make a market. This is a good thing as a trader as I want liquidity so i want market makers to help ensure that liquidity. This is simply how markets work.
Market makers are not there to compete they are there to make a liquid market and are seeking the compensation of bid/ask spread for doing so. If I don't like the bid/offer etc.. like Surprise stated I can place a trade inside the bid/offer and make my own market becoming the best bid and or offer or just stand aside its up to me to choose if it is acceptable for me.
Market makers are not there to "trade" against you (unless it is a OTC non exchange based market maker where an exchange is not providing anonymity and transparency of pricing). Market makers want bid ask spread not be delta long/short etc.. Their function is liquidity. Though none of us like paying bid/ask spread fees etc... we do want liquidity and do want an exchange so that is just part of the cost of the trading business whether it be futures options nadex whatever Since Nadex is an exchange you if you have sufficient capital and are willing and able to make a market then as stated on their site you can become a market maker as well. Even if a market was trading against you they have to be right also.
But the bottom line is a market maker while adding to your cost of doing business is providing a service of liquidity for you to get filled on a trade and, if not OTC based, is not someone who is trading against you but helping you.
Does a market maker, or big firms, or trader co location on any exchange (cme, cbot, nadex or whatever) mean all the cards are stacked against you and its one big gambling machine as your just not going to be able to do trades fast enough to be profitable.
Though I guess one could make some arguments on technology. Consider do you use the same technology as big HFT firms do on CME etc..? Personally I don't I use ninjatrader with AMP on my PC. I have a powerful PC but it does not compare to their technology. So for me just like it does not make an argument for me to not trade futures I would think the same applies to me trading Nadex. I guess that comes down to your trading strategy and how many ticks your going for.
From what I get the only reason to do collocation is for 1 or 2 tick scalping, maybe a faster fill, HFT etc.. But I'm not trying to scalp a tick out of a contract on Nadex or really any derivative style option for that matter and execution speed has not been a problem for me in live trading, just speaking from my experience. But collocation is not really something that I'm worried about. the cost and edge are not worth it personally to me on futures etc... On Nadex The least I am going for is usually $15 after bid/ask spread etc.. which on many contracts only takes about 5 to 10 ticks. If i can't get my price i want i don't take the trade. If i don't like the bid/offer I don't take the trade.
Does an exchange charging fees for doing business, cme bot, nadex or otherwise, by providing a place where buyers and sellers can come together and to cover their cost of doing business and cost of expansion to bring more traders to the market to further increase liquidity, AND/OR does a larger trader or market maker on the other side paying lower or no fees, make trading gambling and/or stack everything against you so its difficult or impossible to be profitable?
In any business you should expect to have fees. Trading is no different.
Regarding fees etc.. whatever the amount they do or don't pay is really is not the point as on any market there is a a bigger trader than me with bigger size paying less or maybe in some cases no fees.
The point is are the fees on any trading instrument acceptable for my trading strategy. On futures I pay $5.00 a round turn. On equity options i pay less than $1.00 a contract and it goes down as my volume goes up. On Nadex binaries and spreads I pay .90 a contract and it caps at $9.00 per order. Whether it be futures, options, or nadex binaries or spreads these fees work with my trading model and strategy as acceptable cost of business. Depending on your trading strategy and risk reward model etc.. you have to judge if the cost of doing business works with your trading strategies.
Bottom Line
I guess it just comes down to you can find a good or bad on anything but what matters is how does it really impact your trading in live trading with actual trading experience on that instrument. I personally trade nadex everyday. I'm speaking from trading experience with the specific Nadex binary and spread instruments and drawing on what i have learned over the years about exchanges, market makers, etc.... Obviously, as im sure my answer show, Im not an expert in all this HFT colo stuff etc.., but hopefully this helps some.
Same goes with the CME and CBOE , MM have contracts with the exchange , an exchange is not a house , if you have the ability you can become a MM as well , and as a retail trader you are already allowed to bid and offer and trade inside the spread with other traders ...
Hoping we can get to some trading ideas or something like that to all benefit on it but I get its important to understand how the instrument works before going there.