Wednesday, January 28, 2009

Special Post - Final CME Pricing Thoughts

I thought I'd put yesterday's post on the benefit of CME costs in final perspective to close out the commission discussion. So as I much as I didn't want to glance back at '08, for the record here's how my '08 results would have been under a non-member (vs. member) CME pricing model:

Per contract per side savings between CME Lease Member and Non-Member commissions:
$0.68 1st 200 Contracts/Day
$0.93 > 200 Contracts/Day

Member Commission Savings:
2008 CME Contracts Traded: 586,184
50,000 Contracts (200 per day x 250 days) x $0.68 Savings = $34,000
536,184 Contracts x $0.93 Savings = $498,651

Lease Fee (Actual '08 Costs) = $22,600

Net Savings $34,000 + $498,651 - $22,600 = $510,051

2008 Net Results adjusted for use of non-CME member rates:
Actual $1,635,103 +214%
Adjusted for Non-Member Pricing $1,125,052 +147%

As suspected, this proves out I didn't need to be a member of the Merc to still generate a substantial bottom line given my trading style. In fact, my initial target still would have been exceeded. Does member pricing further improve the bottom line? Of course. But is it mandatory? Not at all.

Further, as was correctly pointed out by a couple of traders yesterday, being a member has no bearing whatsoever on being able to buy the bid or sell the ask.

The real issue is likely that which I touched on yesterday, which is the non-CME broker portion of the commission rate (often bundled with the CME portion for a single quoted rate). Again, traders should definitely shop around for the best combination of price and service, and if you're paying the high rates referenced in the argument, you're clearly getting hosed by your broker.

I hope that helps put everything in perspective.

Now let's focus on trading!

7 comments:

Michael said...

Good Morning Don,

Interesting discussion back and forth on the subject of CME membership.

Have you thought about purchasing a seat on the CME? It seems like an IOM seat can be purchased for about $300,000. Using simple math, the "current yield" on the investment would be $2,200/mo x 12 months = $26,400 / $300,000 = 8.8% current "yield". Not a bad return if you plan on continuing to be a member for some time. The seat can also be leased back out if you take a hiatus from trading. Also, it is an asset that may appreciate over time, and it would be a way to diversify some of your winnings from last year.

Just a thought.

Mike

AgeKay said...

Hey Don, very cool. What was your average profit expressed in ticks per traded contract? Do you keep other performance statistics?

Don Miller said...

Michael -

Yes, I've given it some thought, yet for now continue to prefer the ability to exit the game at any time.

I may run some more numbers again on it in the near future though.

AgeKay -

I don't track many stats ... check out the later '08 posts as to why. The only # I care about is bottom line ... it doesn't matter to me how I get there.

There is a '08 stats link in the "Memorable Post" section in the lower left hand margin that might help, but again I don't pay much attention to them.

Welcome to the blog!

Don

trader007 said...

Hi Don,

Love your Blog and keep up the good work. I have a question. If you are a CME Member/Lessee , then isn't your GLOBEX Fees capped @( Max $50 ) Daily. This can be confirmed on the CME Web site. You pay Brokerage and Clearing Fees only. Would'nt this save more as compared to paying retail commissions.

Thanks once again.

emacro said...

Hey Don
Your 560K contract and the savings calculation, does it include scratch trades?

Don Miller said...

Trader007 -

Yes, that's correct and is considered in my analysis of the $0.93 savings on contracts over 200 per day vs. only $0.68 savings on the first 200 per day. (The difference reflecting the $0.25 per trade that doesn't apply after 200).

So the analysis is still correct.

Emarco -

Yes, the number includes all trade executions including scratches, brain cramps, etc :-).

Don

Trader Kevin said...

"2008 Net Results adjusted for use of non-CME member rates:
Actual $1,635,103 +214%
Adjusted for Non-Member Pricing $1,125,052 +147%"

CME member rates are akin to the rakeback deals all serious online poker players have. (I get back either 25% or 33% of my rake and tournament entry fees, I forget which. Plus, I never have to tip the dealer. LOL!) This rakeback can make up a similarly significant portion of one's overall poker profit. As you keep stressing, at the end of the day it's all about net profit.