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My pleasure! The underlying fees/cearing costs from the CME to a
non-clearing FCM (which most are for retail clients) come out to about $3.32
including NFA fees for emini contracts ona RT basis. From there - the FCM
typically marks up the cost $2.50 - $5 per RT on that to the IB. From
there - the IB marks it up to cover overhead and create profit for their
business. That does not include software fees which were in my case an
additonal $1 per RT.
3 years ago - an IB getting a $8 flat rate per RT w/o software charges was
considered on of the best rates out there - had to do 20,000 monthly RTs for
an IB to get the cost basis. Nowadays, it's more like $6.00 cost before
software charges. We were able to get rid of our software charges by
renegotiating a new rate with our new FCM (Vision).
Expect on average that there is at least $2 per RT markup over cost to IB at
bare minimum when charging $ customers $8.50 - $10 per RT "all-in" on emini
transactions. IB cost spread is further reduced to the IB if they are an
"independent IB" as opposed to a "guaranteed IB". As a guaranteed IB, the
FCM with typicaly deeper pockets protects the integrity of your account
equity as opposed to the independent IB only able to stand on their own
assets to support your account equity.
So if a IB quotes very low rates - find out whether they are an independent
IB or guaranteed - if they are independent - make sure you ask for a copy of
their financia statement. Many times after reveiwing their financia
statement you will find that you are much safer with going via a guaranteed
IB because they are backed by audited deep pockets of the FCM. We chose
this route ourselves - not because we didn't have capital but because we
found it much safer all-around for ourselves from a financial and compliance
standpoint but more importantly for our clients.
Best wishes,
Mike Herron
Viper Trading, LLC.
www.vipertrading.com
----- Original Message -----
From: "Schedlbauer, Joseph E." <JoeS@xxxxxxxxxxx>
To: "'ViperTrading'" <viper@xxxxxxxxxxx>
Sent: Friday, May 31, 2002 5:51 AM
Subject: RE: problems with ANCO Discount Futures
> Mike,
>
> Thanks for the insight on what it's like to be an IB. I never thought
about
> or knew what a broker goes through, I just cared about the bottom line to
> me. For the most part, most IB's I've dealt with have been honest and
fair.
> This deal with ANCO was the first time I ever felt I was intentionally
> mislead. Now I will make sure I know the fees before I open the account!
> Live and learn.
>
> Joe
>
> -----Original Message-----
> From: ViperTrading [mailto:viper@xxxxxxxxxxx]
> Sent: Thursday, May 30, 2002 6:16 PM
> To: Schedlbauer, Joseph E.
> Cc: omega-list@xxxxxxxxxx
> Subject: Re: problems with ANCO Discount Futures
>
>
> As a competitor of Anco's and other IBs for years, I can say that deal is
> one of the oldest tricks in the book for pricing special offer commission
> rates. We used to offer online stock trading as well in the past and
> noticed the same costly bait & switch games for advertised commission
rates.
> When we tried to tel prospective clients what the real charges were for
our
> competitors on deals like that, they turned a blind eye and went right to
> the company with the offer that was too good to be true.
>
> What we did to promote fair, upfront commission pricing was to create a
> sliding commission schedule based on total monthly volume contracts
traded.
> That way, the customer knew what the base rate was and got a rebate check
> (deposit) back into their account the 2nd day of the new trading month for
> hitting certain price hurdles. We also made the commission rebate
> retro-active back to contract 1.
>
> The reason we did this was two fold:
>
> 1) to be up front with ALL costs so client knew thoroughly ahead of
time
> the cost of commission per contract, and
>
> 2) so that it did away with "haggling" over what the prospective client
> claimed to trade per month so he/she would get a better rate; this way the
> client would truly be in charge of his own cost structure.
>
> The results...no one who truly traded professionally ( once a day) were
> that excited about it. None of our existing cients wanted to change to
the
> new structure because they were doing better with the pre-agreed set rate.
>
> So what it does come down to in my opinion is that traders want a good,
set
> commission rate, with all costs advertised up front, with some service,
> accountability and reliability of online trading platform and broker
> relationship.
>
> We also found that FCMs themselves do not advertise ALL of the little
rates
> that are associated with online trading platforms/software and clearing
> fees, etc. to their prospective Introducing Brokerage firms! We
> unfortunately found that out the hard way recently and had to switch FCMs
to
> reduce our costs for offering a software platform to our clients. We have
> found that patsystems platform offered us the most stability having used
> this for the last 20 months at 3 different FCMS. The key was negotiate a
> cost where there wasn't a "pass-through" software cost of using the
platform
> to the IB (which in turn was supposed to be passed-through to the client).
> We found out this cost 6 weeks after our new FCM relationship began. A $1
> per contract! It was too late to pass the cost to our existing clients so
> we ate it. We also did not want our new prospective clients to pay the BS
> charge either so we ate it for them! Those $1 charges add up when your
> trying to grow a IB business effectively while maintaining an effective
> price edge over the competition!
>
> So what does it all mean? Call your broker up and get a better rate or
move
> the business! There is room in his/her profit spread to give you. If
they
> cannot, it means that either a) they or their IB is owner is too greedy
and
> therefore their (brokers) best interests come before your own or b) their
> firm doesn't do enough monthly volume for the FCM to give them a good
rate.
> We were able to reduce our clearing costs this year by 25% so prices have
> come down. Not as much as the retail client thinks though for the
> above-average Guarnteed IB from the FCM.
>
> The problem is that I have found via management is that many futures
brokers
> become too complacent as theri business grows to a certain point - then
they
> stop prospecting for new clients and count on your large commission spread
> to pay al of their bills and accepted quality of life! The older brokers
> are here to stay because they recognize the need to aways remain
> competitive - the younger ones are gone in months to a few years. the
older
> broker inherits the book of business for the young broker who quit or got
> fired and offers a lower rate to his/her newly inherited client to keep
the
> business or get them tradng again.
>
> This June we'll be running an ad when our web site is reconstructed (to
show
> our new products, clearing arrangement, commission rates, etc. -) to show
> our wares and prices for discount online trading via our IB. It will be
> simple - $9.99 + NFA fees only (that's 4 cents per RT) to clear all emini
> contract trades with a min. act size of $5,000. I imagine the pricing
will
> be the same for single stock futures when they come out on the 21st. No
> data fees, etc. - and you trade on the patsystems platform. The ONLY
other
> charge is if the client does not make at least 20 trades per month. If
they
> do not - there is a $50 monthly patsystem charge. Now there is a $50
> patsystem charged passed to us for clients who do not trade at least 50
RTs
> per month - we're going to eat the charge for those people who do between
> 21-49 trades only for the month. But that's what is needed in my opinion
> for IB growth. This rate comes of course with service, accountability
and
> reliability of the online platform and broker relationship.
>
> 75% of daytrading clients are gone over the last 2 years - more than 60%
of
> brokerages are closed over the same period. Recession causes attrition
and
> if companies aren't willing to reduce rates in times of dwindling trade
> volume and manage their overhead better - then they will become extinct as
> well.
>
> Best wishes,
>
> Mike Herron, CTA
> President
> ViperTrading, LLC.
> www.vipertrading.com
>
> THERE IS A RISK OF LOSS TRADING FUTURES & OPTIONS. PAST PERFORMANCE IS
NOT
> INDICATIVE OF FUTURE RESULTS.
>
> Viper Trading, LLC. is a Guranteed IB of Vision, LP.
>
>
> ----- Original Message -----
> From: "Schedlbauer, Joseph E." <JoeS@xxxxxxxxxxx>
> To: "Omega email list (E-mail)" <omega-list@xxxxxxxxxx>
> Sent: Thursday, May 30, 2002 11:55 AM
> Subject: problems with ANCO Discount Futures
>
>
> > I recently had a bad experience with ANCO Discount Futures. Their web
> site
> > has an advertisement for $9 round turn commissions, so I thought I would
> > give them a try. It wasn't worth it. They charge so many fees that the
> > round turn commission is actually more like $20 a round turn. So I
> > transferred my account. They charged me $100 to do that. Also, their
> > on-line trading system leaves much to be desired. It frequently rejects
> > valid orders and can't keep the total equity accurate.
> >
> > Needless to say, I recommend staying far, far away from ANCO "Discount"
> > Futures.
> >
> >
>
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