Arcades - a good option for new traders

I'm thinking about becoming a professional trader and I'm looking for some advice about trading arcades.

How much collateral do you have to put up?

How much is the desk rent pcm?

Is this a good option for a trader with limited experience (1 year)?

Any feedback will be much appreciated.

Try http://www.traderhouse.net about £1000 per month - Z

Account size depends on their Broker. About 10k for GNI minimum.

I currently work in an Arcade and will try to answer your questions.
This subject has been covered in another thread.

How much collateral do you have to put up? 20k is usual although arcades periodically sponsor people and put up the stake.

How much is the desk rent pcm? 1000-2000 pcm but this is not really the important figure. Much more important is their transaction charges. Mine start at under 1 pound and decrease as I do more volume. As a standard month involves more than 10,000 lots it does become a significant cost.

Is this a good option for a trader with limited experience (1 year)?
It is a good option for anybody who wants to trade for a living as it is possible to make a living doing this far more easilly than if you are following a trend following or directional trading methodology. Many people think if you make 20-30% a year that you are doing brilliantly well. Many here will make 50-100% per month. It is not a methodology you could apply to large amounts of capital such as fund trading but for individuals accounts it cannot be bettered. I know as I traded professionally for many years before I went out on my own. This method is totally different from you standard trading methodology and in many ways being a novice is an advantage as you will not be tied by your previous trading "rules".

Saying that, it is not easy, nobody gives money away. We all work long hours and it takes most people around 6 months to get to the point where they are competent.

Liffe have a list of current arcades at
http://www.liffe.com/access/how/access/bureaux/
This is by no means a definitive list as many others are not listed and trade Eurex.

FYI The other discussion related to this is under the thread "Day trading firms in the U.K."

http://www.trade2win.co.uk/boards/showthread.php?s=&threadid=4648

I've been thru the entire thread (and the other one twalker provided - thanks), but still can't see what the attractions are.

There was an argument that the costs of trading from home are just as high - but I can't get that one to work at all for my own personal circumstances. Zero rent, cost of DSL (which I'd have to have anyway) and the h/w (also anyway) and the s/w - OK. S/W costs are a one-off and datafeeds are the other issue.

But one-off s/w and on-going datafeed costs are NOWHERE near £1500-2000/Month.

So what exactly is the benefit of a trading desk?

Cheaper transaction costs?

Better h/w & s/w?

Fellow traders to chat with?

Training...??? (How/Who - extra cost?)

Prop. trading tools & methods - is this true for all arcades?

I guess I'm interested if my trading success is going to be increased, but travelling into 'town' and paying a hefty-ish monthly fee would need substantial additional factors to be present for me to be convinced.

TheBramble said:

I've been thru the entire thread (and the other one twalker provided - thanks), but still can't see what the attractions are.

There was an argument that the costs of trading from home are just as high - but I can't get that one to work at all for my own personal circumstances. Zero rent, cost of DSL (which I'd have to have anyway) and the h/w (also anyway) and the s/w - OK. S/W costs are a one-off and datafeeds are the other issue.

But one-off s/w and on-going datafeed costs are NOWHERE near £1500-2000/Month.

So what exactly is the benefit of a trading desk?

Cheaper transaction costs?

Better h/w & s/w?

Fellow traders to chat with?

Training...??? (How/Who - extra cost?)

Prop. trading tools & methods - is this true for all arcades?

I guess I'm interested if my trading success is going to be increased, but travelling into 'town' and paying a hefty-ish monthly fee would need substantial additional factors to be present for me to be convinced.

Click to expand...

From what he's saying it seems the cheaper transaction costs are a fairly major part of it. At sub £1 (even if it is each way) thats about half what you pay for a discount broker isn't it? So saving £2 per contract you only need to do 500 round trips (25 a day) to make up £1k in seat fees, which is a fair bit if you're doing one lots but not once you get into size.

wysi

It all depends how you are trading. The method used by many traders who want to make a living but do not have huge margin equity require you to be right in the market and pay market spreads. This requires top notch platforms and high bandwidth direct exchange connections.
A standard dsl connection from home does not even get close to the reliability you need.
I outlined the cost of working from home before. My trading platform costs ~500pcm
Charting (CQG) ~500pcm
Telco from home has to be minimum 256kb fixed line direct to clearer or xchange ~300+pcm (depending on location)
You can VPN with a 2mb 20:1 IP connection at ~100pcm but again reliabiltiy will suffer when you get a fast market. a 1:1 IP costs the same as a fixed line.
Maybe the most important factor is that the arcade provides very cheap transaction costs. Mine start at <1 per round turn and reduce as i do more volume. This is because arcades can offer clearers millions of lot accounts so get very aggressive rates. As an individual doing a few thousand per month you will get nowhere near these rates.
This month is very quiet and I have done over 10,000 lots. If my transaction costs doubled I would wipe out a lot of PnL.
Finally, you learn a lot from other people and quite frankly have a good laugh working in the right arcade. We are all off for a weekend skiing in the Dolomites this coming weekend. I would miss this type of thing if I sat at home every day wondering how everybody else was doing. We have had guys set up at home and then move back here because their PnL was better when they were in this environment.
Hope this helps.

Just to clarify, do the arcades charge transaction fees based on the number of lots you trade or the number of trades you make.

For example buy 1 lot, sell 1 lot - is the charge GBP1

or

Buy 25 lot, sell 25 lots - is this also GBP1?

The cost is based on lots you trade for e.g.
Buy 1 = 45p
Sell 1 = 45p

or Buy/Sell = 90p

Tend to have sliding scales. Initial costs vary from 60p(which i think is a rip off) to ~45p both per lot/side
These can get down to ~35p/side with enough volume.
These are further reduced because if you create a lot of volume the exchanges will also pay you rebates. Their formula is complex and depends how far out you are trading but ~20,000 lot will provide at minimum ~1000GBP rebate which just about covers desk fee itself .

So costs are on a per lot basis
1lot = 45p
10 lots = GBP4.50

Thanks for all your help twalker. May I ask what arcade you use?

I currently work at Trading Connections
www.tradingconnections.co.uk
don't bother as website down for update

TWalker

It is a good option for anybody who wants to trade for a living as it is possible to make a living doing this far more easilly than if you are following a trend following or directional trading methodology. Many people think if you make 20-30% a year that you are doing brilliantly well. Many here will make 50-100% per month. It is not a methodology you could apply to large amounts of capital such as fund trading but for individuals accounts it cannot be bettered.

Click to expand...

At the risk of souding ignorant, could you explain what the trading methodology is, not in any great detail, but what are you doing if not trading direction, what instruments you trade and what sort of risk is taken per trade in order to acheive 50 to 100% per month. This is not meant as a challenge to what you are saying, I am genuinely interested to hear how other people trade and what kind of results can be acheived.

TWalker

I'm sure a few people do make that kind of money, but the majority do not.

A friend who worked in STA for 5 yrs did well early on, and then found it getting harder and harder to make a living and has now given up. Too many people doing the same thing (STIRS).

Even worse, another guy in his office had been successful for years, and blew up in one week in the autumn leaving him back to square one.

So you could be chipping away making a decent living because the spread doesn't move too much, only for it to blow out and that's it.

Another friend, who is an Equity derivates trader for Goldman Sachs and used to trade interest rates looked into the Bond spreads angle. I won't forget his coment, which was proven right by the above "It is a flawed business model".

"Even worse, another guy in his office had been successful for
years, and blew up in one week in the autumn leaving him back
to square one."

The temptation is always there to double up and double up
again.. This is especially the case when you are in a losing
streak and everything seems to be going wrong.. You end
up revenge trading and taking your frustration out at the
market. The huge leverage in the futures market means that these
guys are especially at risk of overtrading and blowing up.

When the market is giving you a good licking, its time to trade
smaller or get out and have a break for while.
However this is much easier said than done, because trading
is addictive: Even when know we are doing the wrong thing
we do it anyway, we cant stop ourselves.

Like Willaim Eckhardt says in New Market Wizards (im quoting
from memory here):
"The addictive aspect of trading is the reason why so many
traders who make fortunes in the futures markets leave the game
broke"

I will address the last 2 post seperately...

First darrenf

"could you explain what the trading methodology is"

It is essentially scalping. Sitting on the bid or offer of a spread or outright and once getting filled placing orders on the opposite side of the bid/offer spread or taking the opposite position in another contract/spread.

"what are you doing if not trading direction"

Trading volatility mainly but not in the options sense. I do not care where the market is going long term. Will always look at short term chart to know which contracts are best to spread against what I may have just been filled on to give best if market bounces around wildly.

" what instruments you trade "

I personally trade Short Term Interest Rates as they are very liquid and have a liquid forward curve going out to 06

" what sort of risk is taken per trade"

The risk per trade should in most cases be your transaction cost. Providing I can get out of a spread if the market goes against me before the volume on the bid or offer disappears then that is all I lose. At worst you talk 1 tick which for example is E12.50 in Euribor.
Every profitable trade will make me E12.50 minimum/lot.
Increase in volume comes with experience. A lot of people start small and then increase their size gradually. Maybe start at 5 lots then go to 10 then 20, 50, 100 etc. As size grows so does PnL generally. It is very important to stay within your personal comfort zone. It takes time, hard graft and patience.

Now DaxTrader

It is a shame for your friend who blew up. This is of course possible in any style of trading but maybe more so in this if you lose your discipline as the bet size is quite large vs. margin.
Nobody ever said this was easy, it is not. I work very hard indeed and the traditional vanilla idea of sitting on a single spread and hoping to make money is not going to make anybody a good living. fact is we want the spreads to move around wildly, slow moves are not good for us, you just better be quick on the mouse at times and not lose your concentration.
The only people I have seen blow up are people who hold on to positions or start legging into spreads rather than waiting for the spreads to trade as a product and then hold on. It is easy to do and we all have lacked discipline at sometime, even easier to do when after you have had a good run and start to get cocky.
It does work for a lot of people however and the proliferation of arcades are proof of this. It is a new business, screen based trading has only been around for a few years now but liquidity is increasing and will continue to particularly when we get Liffe and Eurex listing US futures also.


As for the Goldman monkey(no offence). either he doesn't really know what he is talking about and is shooting from the hip, a very typical Goldman trait ( I have a number of friends that work there in FI) , or he was looking from the perspective of trading large amounts of the IB's capital through this methodology. This would not work as you would be forced to take a view. It is only good for people that trade their own accounts and trade upto a few hundred lot clips. This is not for the fund managers and it is not for everybody.

I have rung around and I'm seeing a few people this week about renting a desk.

Costs are - desk rent GBP 2,100 (this is for use of TT, CQG, Reuters, 3 screens, access to Eurex, Euronext.liffe, CBOT, CMW, and Matif).

Collateral - min GBP20K

Commission charges start at Eur 0.88 perround trip / per lot (these work on a sliding scale)

Based on trading 10,000lots per month, I will incur a cost base of roughly Eur 7,500 per month - this is before I make a penny, God forbid that I make a loss!!!!!!

Looking at these numbers truly frightens mean, but not enough to walk away.

Get this - one of the better known arcades charges £500 pcm for CQG a mate tells me. They get access to one screen ( a licence of CQG gives you 4 - the other 3 screens are shared among 3 others) so you have to pass the mouse and keyboard around! A licence for CQG (all 4 screens) costs £500 - so they are making some fat profits!

I'm a bit stumped though - as most of these guys are spread monkeys, they surely wouldn't have time to pass the keyboard around, so it does sound a bit odd. MAke sure first though. Check out the web sites first to make sure you're not getting taken to the cleaners.