option commissions

[stevenpaul]

Hi everyone!

You hear it all the time on this forum: such and such strategy is absolutely out of the question, unless you're a market maker or trading on the floor. Then, it's perfectly fine because, after all, they don't pay nearly as much in commissions. Or, you might hear how market makers often set up extraordinarily complex spreads whereby all 6 Greeks are neutral in order to profit on the bid-ask spread (whopping sum that it is). I'm becoming increasingly skeptical that market makers and floor traders have it so much better than the rest of us. How much exactly do they have to pay for commissions?

I know at IB the commission structure seems pretty good: The highest we have to pay is $0.70 per contract and it goes down to as low as $0.15, depending on the volume traded per month. Can the folks on the floor do any better than that?

Thanks in advance for the feedback.

 

[tradingjournals]

Order flow, wide bid-ask can be an edge. Commission is not an edge, just a cost that may not allow you to milk the edge. IB does market making.

 

[spindr0]

Who would market makers pay commissions to? Ummmm, they make the market.

Floor traders buy and sell for their own accounts. They don't pay commissions.

 

[MTE]

Market makers and floor traders don't pay commissions, but they do pay a clearing fee to their clearing firm.

As a retail customer, no matter how low of a commission you pay you still pay more than just the clearing fee.

 

[stevenpaul]

Yes, after having submitted the post, it occurred to me that floor traders pay upfront for the right to trade directly through the exchange and therefore wouldn't pay commissions, just clearing fees. However, I wonder how the cost of a seat on the exchange compares to paying commissions. Like buying a hybrid, it's probably a while before it pays off.

 

[emg]

Quote from stevenpaul:

Yes, after having submitted the post, it occurred to me that floor traders pay upfront for the right to trade directly through the exchange and therefore wouldn't pay commissions, just clearing fees. However, I wonder how the cost of a seat on the exchange compares to paying commissions. Like buying a hybrid, it's probably a while before it pays off.

If you are looking for extreme low commission, lease the exchange seat. However, do so if your trading strategy is making money.

 

[ellevers]

Here is the fee schedule for the ISE http://www.ise.com/assets//documents//OptionsExchange//legal/fee/fee_schedule.pdf

that doesn't include clearing and OCC fees.

 

[stevenpaul]

Quote from ellevers:

Here is the fee schedule for the ISE http://www.ise.com/assets//documents//OptionsExchange//legal/fee/fee_schedule.pdf

that doesn't include clearing and OCC fees.

Oh, so am I to understand that market makers do indeed pay fees beyond clearing and OCC costs? A number of others on this thread were suggesting that MMs get to trade for free, apart from exchange costs. According to this fee schedule, it looks like market makers are paying $.18 per contract for the first million monthly. Not bad, but not free either.

 

[noob_trad3r]

Quote from MTE:

Market makers and floor traders don't pay commissions, but they do pay a clearing fee to their clearing firm.

As a retail customer, no matter how low of a commission you pay you still pay more than just the clearing fee.

when you collect 2-3 grand in premium and pay like 25 bucks in commission why care?

they can keep the 25 bucks for that one trip.

 

[livevol_ophir]

I'm a market maker on NYSE ARCA. I see posts that we don't pay commissions... That's not true at all.

We pay commissions to the broker-dealer like everyone else. We average ~ $0.275 per contract taking a market and $0.16 for MM trades, and $3 per 1,000 shares of stock.