Archive for February, 2010
Prompted by a combination of various email & Twitter responses to my recent post on CME member commission rates (feedback greatly appreciated btw), as well as lots of confusion and lack of clarity (some purposeful) on the various rate structures involving non-members, lessees, and Electronic Corporate Memberships (ECMs) — I haven’t come across a single current comprehensive comparison — I’ve put together what I believe is an accurate and detailed cost comparison of choices for traders seeing to reduce their expenses via the CME member route:
Essentially, I lay out the four common choices: non-member, Lessee, ECM-H, and ECM-M. (I chose to omit the fifth option of purchasing an Exchange seat which is out of reach for most and would introduce a host of other cost/benefit issues beyond this scope.)
For those not familiar with ECMs, the term refers to Electronic Corporate Memberships which are available to Prop Firms and whose commissions are priced in-between non-member and Lessee rates. As noted on the CME ECM Q&A, an ECM-H still requires the purchase of a lease (two in fact) while an ECM-W (a temporary category) allows for a waiver of the lease so long as average daily volume is at least 50 contracts.
A few notes and observations from this end:
- I’ve highlighted the lowest total monthly cost given various volume levels in green.
- The analysis only reflects the CME rates. FCM or Prop Firm commission setting & bundling is firm-specific and could have as many flavors as Baskins Robbins. So consider the prefacing phrase “all things being equal …” critical as you review the data.
- Given the lower commission rates — and especially the substantial discount structure that kicks in for lessees after the 1st 150 avg daily contracts (which is not applicable for either ECM) – the lessee option remains the most viable option for a single trader trading more than 150. Below 150, trading with a Prop Firm (yours or somebody’s) that doesn’t have to pay for a lease under the current waiver based on volume has the slight edge since there’s no trader lease payment.
- The slight advantage for a low volume ECM-W trader would quickly disappear should (1) the Firm impose a substitute fee or cost (profit sharing aside as mentioned below), or (2) the trader experience even some modest growth in volume following initial success beyond 150/day.
- The ECM portion of the analysis essentially reflects considering establishing a one- or two-person Prop Firm (vs. Leasing) just to realize the discounts, versus am existing larger firm that could spread the lease cost over a larger group of traders.
- The analysis also of course reflects a pure financial exercise and doesn’t consider Prop Firm benefits such as access to capital, shared infrastructure, risk controls, education, etc. or drawbacks such as having to share profits with the firm. Our good friend Dr. Brett has done some solid posts on Prop Firms pros and cons … just do a search on his site for “Prop Firms”.
I hope you find the analysis useful.
Here’s a video summary of today’s TV session on the topic of CME lease price trends, along with related links.
While the session wasn’t recorded (I fired the operator — me — who only hit the record button once instead of twice), this should pretty much cover it, and future sessions WILL be recorded for later On-Demand play.
Please note I didn’t discuss ECM (Electronic Corporate Membership) scenarios which involve discounted commissions for prop firm traders. Here’s a link overview.