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The facts of life are as follows:
* Futures commissions will continue to fall. Soros, fund managers and
company are NOW paying anywhere from $1.00 to $2.50 per trade. The SFE
locals used to get their brokerage rebated to $0 if they scratch a trade.
They are effectively getting nearly free trades. Believe it or not, brokers
will negotiate cost only brokerage if you can show the volume. Why ? Read
the next point.
* Why would a broker charge very little for your trading to go thru their
system ?? Because the higher the volume they generate the lower their
overall transaction costs become. In the past commission was based on
"high margin, low volume" which then became "low margin on high volume
only" and it is now becoming "low margin and get as many bloody trades
processed electronically as possible".
* The cost of transacting a futures contract via screen will equate to the
following:
(1) the futures exchange clearing cost (usually anywhere from US$0.50 to
US$1.50 per trade)
(2) the brokerage commission to your broker (this will stay at current
levels now but will head closer to zero over time)
* In the next 6 months there will be an avalanche of "online futures
products" that will be sold to futures clients.
* Screen trading will present a cost saving to the broker which will result
in either higher profits to the broker or lower commission charged to the
clients. Given the highly competitive nature of this business, I'd
speculate to say that the latter of the two will occur.
* The liquidity that locals provided on the floor will in the future be
replaced by the liquidity of the "rest of the market". Exchanges will
furiously compete with each other to attract your trades towards their
exchange and products. Exchanges will compete for your "punting money". A
futures exchange reliance on the "local" will evaporate once they go
electronic. Market makers are great when markets are illiquid but then
their role are substituted once liquidity kicks in. Great examples of this
are the Eurex Bunds and the Nasdaq when they first started.
* The job of a human broker is now a dinosaur. Do you know what happened to
blacksmiths when the automobile arrived ? How many blacksmiths do you see
when you go out for a drive in your car ?
* The Sydney Futures Exchange (SFE) closed its floor in Nov 99. Today, the
locals are trading via screen trading and they are trying to gain that
extra edge by using "Advance GET" and "Market Profile" and all that other
crap that everyone has tried over the last 10 years. What this means is
that these ex-floor traders have the same tools as you and I. The speed of
execution and frontrunning large orders on the floor has disappeared for
these guys. The playing field has been levelled like never before.
I can not wait for the day that the USA markets go electronic. Why ? lower
slip on the more liquid markets and higher slip on the less liquid markets.
Do you know how sick I am on paying slip on US markets on figure nights. I
trade the Bunds at the same time and they move too but very little slip.
You wonder why the Bund is now more LIQUID than the US 30Y T-Bond or the
US10 Yr Note ?? Chicago has lost its label as producing the most liquid
contract in the world.
Well, there is at least one smart cookie in the USA. The NASDAQ. These
equities guys have finally nailed it. Why is the Nasdaq in such a dominant
position in global equities markets and why is the Eurex in such a
competitive position in the global futures markets??? They have
"commoditised" the transaction of trading a share and futures contract by
embracing technology into the process of transacting a trade. Less humans
touching the trade means higher efficiency and lower costs.
The best thing CBOT has done is hook up with Eurex, if you can't beat them,
then sleep with them. Once the CBOT places their markets electronically in
parallel with the floor, I'll be moving my trades to screen and guess what
shortly it will be good-bye floor.....
Hello USA futures markets and USA futures exchanges and USA futures
brokers, Knock!! Knock!! KNOCK!! HELLO is there anybody home ???
HELLO!!!!!! Anybody there ???
The earth is not flat anymore.
Robert Bianchi
r.bianchi@xxxxxxxxx
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