Self Clearing and Pricing

Originally posted by TickerWatcher
You got me!.....I made a mistake with the 100% markup, that's not too high.

By the way 300*.0025 = .75

The value we pay is in the commissions. Value is an opinion how we perceive the worth of something.

Traders can pay 1/2 cent and get value! To me value is a stable platform, good executions/quotes, new and leading edge tools, along with a good support group.

Paying more for slow executions and a mediocre platform and a training class would make me a foolish consumer, not to mention a terrible business manager.

Firms that can't cut the fat and/or develop new systems to become more competitive will fail! Evolution my man, survival of the fittest.

<i>In a couple of years clearing costs will be so inexpensive they will almost be nonexistent.</i>
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This last part -- exactly. Just like it is for a pit trader.

I have no problem with people earning a profit. I've owned a business. And I couldn't begin to price my services/products without having a handle on costs. Now I'm a purchaser of services. I want to pay a fair price. And I don't want to pay for what I don't need. Clearing to me is not what it might be to 10 other traders. Sell me clearing at a fair price, according to the risk I present to you, so you can make money and I know how much I have to make to pay you for the service. But don't try to bundle a whole bunch of other crap with it and pump up the per-share rate -- I can pay for my own quotes, my own executions, my own front end, etc. -- and these things are a fixed expense to me (excepting executions). I can leverage my revenue against fixed expenses. I can't against a variable expense.

<b>Clearing is so bloody fungible it ought to be a fixed expense.</b>
 
Originally posted by chasinfla


I have a hard time believing that it costs a clearinghouse 1/3 cent per share to clear a trade, when billions of shares are cleared a year. Maybe I am wrong, wrong, wrong. I'm doing my due dilligence now.

If it costs them more than 1/1000 cent per share to clear (and clear only), I'll be surprised.
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Chas,

You're right, it cost's no where near 1/3 cent to clear a trade...IF:

1. The trade is, or an average of the tickets in that symbol are, over 400-600 shares;
2. The clearing firm is providing only bare-bones clearing (i.e. no other services); and
3. Your firms risk profile is acceptable.

Also keep in mind that almost all clearing firms also have fixed costs per ticket (irrespective of share quantity) of anywhere from $.50-1.50. So if you're trading 1000+ shares the clearing costs are low....0025-.00375 for a new firm/.0015 for an established firm. That's not what it costs the clearing firm. It's what the clearing firm charges the BD.
 
Originally posted by TickerWatcher
You got me!.....I made a mistake with the 100% markup, that's not too high.

By the way 300*.0025 = .75

The value we pay is in the commissions. Value is an opinion how we perceive the worth of something.

Traders can pay 1/2 cent and get value! To me value is a stable platform, good executions/quotes, new and leading edge tools, along with a good support group.

Paying more for slow executions and a mediocre platform and a training class would make me a foolish consumer, not to mention a terrible business manager.

Firms that can't cut the fat and/or develop new systems to become more competitive will fail! Evolution my man, survival of the fittest.

In a couple of years clearing costs will be so inexpensive they will almost be nonexistent.
More...


No one (including IB and PD) offers a straight 1/2 cent commission because it would cut into their margins far too much and leave no room for the "value-adds." A great platform, tools, quotes, support, etc. all cost money, and I've already outlined a BD's costs for you. The math is simple.

Speaking of simple math, I've never been in retail but isn't .01/.0025 = 4 = 300% (markup)? Or am I using that new voodoo math?
 
Originally posted by GHJ


Chas,

You're right, it cost's no where near 1/3 cent to clear a trade...IF:

1. The trade is, or an average of the tickets in that symbol are, over 400-600 shares;
2. The clearing firm is providing only bare-bones clearing (i.e. no other services); and
3. Your firms risk profile is acceptable.

Also keep in mind that almost all clearing firms also have fixed costs per ticket (irrespective of share quantity) of anywhere from $.50-1.50. So if you're trading 1000+ shares the clearing costs are low....0025-.00375 for a new firm/.0015 for an established firm. That's not what it costs the clearing firm. It's what the clearing firm charges the BD.
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Now we're getting somewhere. Ive PM'd you for details.
 
you guys are still ommitting ECN fees, cancel fees, wire xfers (some firms don't charge), SEC fees, membership fees, exercise/assignment, shorting stock systems, etc. As I stated in another post/thread, if it were so simple and so profitable why aren't there 50 firms running to outprice PD and IB? Why don't you start up you're own clearing firm and find out. Clearing is more of a headache than you realize and you are underestimating the total costs.
 
Originally posted by def
you guys are still ommitting ECN fees, cancel fees, wire xfers (some firms don't charge), SEC fees, membership fees, exercise/assignment, shorting stock systems, etc. As I stated in another post/thread, if it were so simple and so profitable why aren't there 50 firms running to outprice PD and IB? Why don't you start up you're own clearing firm and find out. Clearing is more of a headache than you realize and you are underestimating the total costs.
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By clearing I am talking strictly about trade matching and settlement.

I think it is simple in principle, technically and legally complex, and requires a great deal of capital -- high barriers to entry.

I have no doubt that it is a terrific headache. My intent in these threads is to get an estimate of the total costs.
 
GHansen says we have a "piss poor execution system"....that is just plain silly, and has only been brought up by firms who could not qualify for Redi Plus...I mean, really, this is the preferred platform...and is being updated almost monthly to accomodate traders needs. With the merger of Redi and Arca, we have one of the most reliable systems in the world. **A side note** a competitor is about to lose access to Redi, which will bring quite a number of traders back to us since they insist on Redi. As far as proprietary trader tools, we offer full automation, complete tie in via Neovest. What we don't do is simply license out from a 3rd party vendor some generic system and put our name on it (some do, this is not directed at anyone in particular) . Traders who put too much emphasis on the platform are usually kidding themselves anyway...ours does everything very well.
We "offer" all the tools that are needed by traders, we can give traders all the bells and whistles if they want them, we simply train our people to trade in such a way that most don't bother with all the nonsense. Again, Redi has really come up to the plate and has leap frogged most other systems.
(Please note that I am not directing any "anger" at you, I am just responding in similar tone, some of your other points are very valid).

More points: Clearing runs about half or the costs of running a firm, execution, communication, cost of money, etc. make up the other half.


It is not really a big deal about the Self Clearing aspect of the business. We run the numbers monthly, and we are literally bombarded with lower cost alternatives from clearing firms, and we use that to negotiate the best possible deals for our traders. Clearing AND execution via a strong viable firm, with top rate software, great connectivity and multiple server farms (thanks to the above mentioned merger).

(Enough of the "Bright commercial" - thanks for the good input, and as always, check everything about the firm you're about to partner with before signing anything...that includes us!).

Good Trading....

Don
 
Funny thread. Instead of Don & Def being the only ones taking heat for being in business, I figure I probably deserve a little too.

I agree that everything in the financial business should be free. Of course we'll get exactly what we pay for.

Why isn't anyone asking what the electricity bill is each month? Or the telecom bill? Technology development?

Asking how much a company spends on one item such as printer ribbons is irrelevant (unless of course you're selling printer ribbons). Do they offer the service you need at a fair price?

I can't compete with Def on price and Def can't compete with me on service. They are simply different business models. You have to decide what's important to you as a trader. Many traders hold accounts under both models because they can be complementary.
 
Originally posted by matthew
Funny thread. Instead of Don & Def being the only ones taking heat for being in business, I figure I probably deserve a little too.

I agree that everything in the financial business should be free. Of course we'll get exactly what we pay for.

Why isn't anyone asking what the electricity bill is each month? Or the telecom bill? Technology development?

Asking how much a company spends on one item such as printer ribbons is irrelevant (unless of course you're selling printer ribbons). Do they offer the service you need at a fair price?

I can't compete with Def on price and Def can't compete with me on service. They are simply different business models. You have to decide what's important to you as a trader. Many traders hold accounts under both models because they can be complementary.
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sounds like something a broker would say. i didn't think in terms of costs and their relationship to what I should be paying for goods and services until i owned my own business.
 
No system is perfect and none of them will necessarily help you be a better trader. Costs for the various vendors systems will vary: Pick (or design) one with the basic features you need that match your approach to the markets. Even if you pay a higher cost you can still make good money if your approach is sound and you are disciplined. Hook up with a firm that offers what you need. Keep in mind that not everyone is an expert in setting up trading rooms. Lots of folks need infrastructure set up for them and dont want to be involved in the minutia and dont mind paying for these services. Others need a place to learn. Many of these firms offer a chance for people to learn - albeit on their own nickel.
 
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