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Thursday, February 16, 2017


“Let’s see … where’s that chapter on trading costs?”

Stay in this business long enough and you will see everything; for the longest time, many years in fact, outside of the FX arena and excluding gold, brokerage houses and liquidity provider [LP] banks have been absolutely gouging the retail spec trading public with outrageous spreads on their CFD’s [Contracts For Difference] and high round turn [RT] commissions. If you take the trouble to do the math, the amount of money even a small account gives away each year is staggering. For a guy like me, who spent years on the trading floor with optimal, razor thin trading costs, accepting these conditions has been impossible.

But let’s step back a sec and take a “bigger picture” look and gain some perspective. In today’s trading universe, there are only 2 avenues you can travel down if you want to trade; 1) futures contracts via listed exchanges, the largest by far the CME in Chicago, and/or 2) offshore [defined as simply brokerage houses outside the U.S.] CFD’s [or “spread betting” as it is sometimes called in Europe & the U.K.] offered by LP banks to their brokerage house clientele.

Because of the “nanny state” mentality of the U.S. government, and more importantly the lobbying efforts of the CME, CFD’s are not available to U.S. clients of U.S. based brokerage houses; the government says they are too “risky”. “Ok, let me get this straight cuz maybe I’m missin’ something … I can’t trade a 1 lot CFD in the SP500 worth 1 * the index that = about $2350 at current price for ± $1 in my account per index point … BUT … it’s OK for me to open a futures trading account with the same money at a U.S. broker and trade SP500 futures [through the CME of course] where a 1 lot = 50 * the index, which = 50 * 2350 = approximately $ 117,500 and every index point change means ± $50 per 1 lot? That’s OK?

U.S. GOVERNMENT RESPONSE: “Yup”. Just another reason in a very long list of why the U.S. is hated, despised, and mostly avoided by the rest of the world when it comes to financial trading; all so that the CME gets their precious futures business while avoiding any/all competition from anywhere. Anything that takes away a penny of revenue means less money in their pocket and less money for political donations to the various scumbags in Congress who protect them via legislation. “It’s for your protection don’tchaknow”?

CFD’s became popular in Europe & the U.K. for one simple reason; taxes. A bank takes a financial derivative like the SP500 stock index and offers it to you at 1 * the index; if you trade it, in essence you are making a “bet” with the bank [hence the term “spread betting”]; “bets”  [financial, sports betting, etc.] are considered gambling in Europe & the U.K. and are tax free. The bank takes all comers and makes its money through commissions and the spread offered in the financial product, and more importantly hedges through the appropriate futures markets anything and everything their customers do as a collective group; for the LP bank, it’s better than a casino license.

For all of us retail specs sitting out here in “traderland”, these are our only choices. Up until now, CFD’s gave you tremendous flexibility to allow you to better quantify your risk management profile via much lower contract sizes, but the costs made you want to weep. The futures contracts, on the other hand, “pigeon hole” you into standardized contract sizes that may be too large for your account, but offer lower costs. Some choice, huh?

And so, I’ve been telling LP banks for years, “You want more business? You want volume to explode at your bank? [and they shake their collective heads like bobble head dolls in agreement] Then for cryin’ out loud, get the damn spreads lowered and get RT commissions to where they are meaningless and you’ll have more damn business than you know what to do with, all the while exploding your bottom line due to much, much heavier volumes flowing through your doors! [and they sit there and collectively it’s … crickets.] And it makes you wonder what dysfunctional business schools did these guys attend? [Hint: “my money is on Ivy League”.]

Because I got news for all of you; you have to look really hard, go to a lot of brokerage houses, decipher the BS you get force fed when asking questions, download demos and make sure you’re on the right platform, ask more questions to people that are dumber than the first ones you talked to, and then finally you get to see you only got half the story and the spreads are larger and everything is “larded up” with fees. And this is just with individual accounts; I’m not even talkin’ about PAMM/MAM’s where it’s even worse than you can imagine!

For years, I thought maybe some of these LP banks would figure it out; slowly spot gold [XAUUSD] started to come around in 2010 – 2011, where “net” trading costs [spreads & RT commissions if any] at Saxo Bank were lowered to about $0.50 - $0.60 per Oz., and they represented about the best “deal” you could find [but, you had to trade in 50 OZ. increments]. In recent years, right up until Turnkey Forex, the very best in the world were Assets FX & LMFX, which had “net” trading costs around the $0.27 [the low side] to $0.35 [the high side] area, but especially with both there were significant slippage issues if you were buying/selling at the wrong time. [Like buying at the market when it is exploding up or selling at the market during a waterfall.]

Even today, as you are reading this, the vast majority of brokerage houses “offshore” offering XAUUSD trading in 1 OZ. increments will have a “net” trading cost of anywhere from $0.40 - $0.70, all the while telling you about their “super tight” spreads and deep liquidity. “Seriously, I don’t know whether to laugh at this or cry it’s so pathetic”.

And as everybody by now knows, we enjoy the absolute lowest trading costs anywhere in the world in XAUUSD with spreads in the $0.05 - $0.17 range [most of the time] and RT commissions of about 2.4 cents per OZ. at current gold prices. It’s why we’re here!

So, while it’s been relatively slow for XAUUSD to come around, it’s been an absolute nightmare in the stock indices; specifically the major U.S indices the DOW30, NDX100, & the SP500. Longtime readers/clients will remember the problems I had at Assets FX, and then Traders Way [both of which, by the way, no longer accept U.S. clients], when trading the stock indices. For a while Assets FX tried the LP bank Finsa, which promptly lasted a month before exploding in their face, and the LP at Traders Way doubled the spread within a month of my trading there.

The DOW30 presents a particular problem for LP’s wanting to make a market in this index; namely, the way the index is calculated the denominator divisor is fractionally small and thus it only takes very tiny changes in any of the components of the index to send this index on a roller coaster ride. If you make a “tight” market in this, there may be times as the LP when you can’t get your hedges off and make money, and therefore pretty much all LP’s out there don’t want to get caught getting picked off by a bunch of retail specs.

The problem in the SP500 & NDX100 has been one of pure greed; LP’s and their brokerage house partners simply don’t want to offer competitive spreads and RT commissions because they don’t feel they have to; today, as I write, the vast majority of brokerage houses offer the SP500 CFD [some at 10*the index, some at $1* the index] at 0.50 – 1.00 index point spread [and some will further charge a RT commission and some won’t]; somewhere Vito Corleone is blushing with envy.

For the record, for those that don’t know, the SP500 e-mini futures contract traded at the CME is 1 contract = 50 * the index, and the futures trade in 0.25 index point increments, so it’s $12.50 per tick per 1 lot.

As I said earlier, you stay in this biz, you see everything; but what I’m seeing at Turnkey Forex in the U.S. stock indices has my head “swimming”, cuz I haven’t seen anything like this since I’ve been on the trading floor back-in-the-day. I’ve been at Turnkey for about a month now, and I have watched closely spot gold {XAUUSD], USDJPY, GBPUSD, NDX100, and also the SP500. Yen & Cable are on a par to ever so slightly better than the best houses across Europe in FX; especially in USDJPY, Turnkey is better by about 0.3 to 0.5 PIPS than anybody else out there.

However, the difference in gold [as I’ve stated previously] and the stock indices is major league “bigly”! There are plenty of times during the trading day where both the NDX100 [Nasdaq 100] & the SP500 are trading at zero spread; yup, that’s right, the bid and offer are the same price. Most of the time during normal U.S. trading hours [9:30 – 16:00 EST.] the SP500 spread is 0.0 – 0.3 to maybe 0.4 for a brief second before returning to 0.1, 0.2, or 0.3; it’s a variable spread, and it changes with market conditions on the futures. Ditto for the NDX100 but the range of the spread here is usually 0.0 – 0.5.

If you do the math, the RT commission rate for the SP500 [at current price of 2350] comes out to about 4.7 cents per 1 lot; if you traded a 1 lot you would be charged 5 cents [rounded up]. Adding this to the spread, and your “net” trading cost for the SP500 is anywhere from 0.005 – 0.305 index points; and yes, it’s easily possible to do better than the futures which is at a fixed 0.25 index points! [Note: If you plan on trading the SP500 during non New York hours, just be advised that if the market is “dead” (meaning no volume, no movement), the spread can jump anywhere in an instant depending on what the emini futures contract bid/offer looks like when things dry up; therefore, do yourself a favor and leave it the hell alone until New York opens for trading.]

So naturally, since inquisitive minds need to know, I chatted up management at Turnkey and asked them how they did this in the SP500 and NDX100? SHORT ANSWER: “We have institutional access to the very largest 16 – 21 multinational banks around the world that make markets in stocks as well as actively trade & hedge futures; clients get the very best bid/offers with institutional rates from institutional electronic platforms. Many times competing banks whether in futures and/or cash will be on opposite sides of the market at the same price, and instead of marking everything up, we pass it on to our customers. We make more because our customers trade more”! And there Gents & Ladies, is what I’ve been screaming for years. Finally!!!

Please understand, this is what’s known as a “game changer”; I’m not sayin’ I’m going to all of a sudden only start trading the SP500; for one thing, volatility in this index, especially intraday volatility, has been off and on terrible for the last 11 months [Brexit & U.S. elections notwithstanding], and the VIX here seems to be permanently planted in the 10-13 range, which is nothing short of “disasterville”, and has gone from bad to worse to worser-er this last year. Ok, we all know this; on the plus side we got a deep market that can handle just about anything I want to do volume wise, we have the best cost structure I’ve ever had short of when I was on the floor, and unless you are here, you’re trading under circumstances that put you at a disadvantage to me, and lastly this market is less prone to daily reversals than gold and/or Yen. One more thing; the VIX for the USDJPY & gold markets aren’t much better right now than the SP500 sitting at 12.86. Today, gold VIX is at 14.25, USDJPY VIX is at 10.80. Ok, where’s the “slam dunk” volatility that I’m missing if I trade the SP500?

Too be sure, there most certainly will come a day when volatility picks up, and this index will return to its old self of 20+ index point ranges every New York session; and when that happens, the PAMM/MAM will be involved “bigly” and trade it “yuuge”, especially if gold loses some volatility itself at the same time. With the SP500 index CFD priced at 1 decimal for trading, and with the cost structure in place here at Turnkey, all it takes to be up money in any position [long or short] is a minimum price fluctuation of 0.10 index points above the spread you had when you entered the position. Since the spread a great deal of the time is lower than the futures spread, these are trading conditions I only enjoyed from the old SP500 futures pit many years ago.

And for those of you wondering if I’m “stretching” things a bit with the spread in the SP500, directly below a screen shot from a few minutes ago deep in the heart of the New York trading day; it’s 0.

[click chart to enlarge]

Bottom line is this; spot gold, the very best; spot USDJPY, the very best; and now SP500, the very best. We have 3 of the largest markets on the planet with the best trading conditions anybody could ask for, equal to or even better than exchange members enjoy; trading doesn’t get any better than this. Period. “It’s good to have a Plan B & C isn’t it”?

So, starting with March 1, 2017, in the archived charts section of the website, I’ll be cataloging the SP500 exhaustion moves and removing the DOW30; they pretty much mirror each other anyway, but going forward, if I’m going to potentially trade the SP500 instead of the DOW30, then it makes sense to follow it. In addition, the trading manual for the stock indices [SP500] will be done shortly and up on the website along with the mq4 algorithm code.

Turning to today’s market … sshhhh! People are sleeping … here at the NY open about a $7 range and HVALUE … nothing on the docket for release today that’s important, so I don’t have a clue what drives gold today other than maybe stocks hitting new recorder-er highs every 10 minutes … but, more than likely, somebody as I write is getting ready to panic … tomorrow is options expiration, and word has it on the street a very large hedge fund is under water to the tune of 20 large [that’s billion] in short gamma on the SP500 and is responsible for the “melt up” in prices in stocks … more than likely this is supporting gold.

An hour into the New York open and all I see so far are stop hunts on both sides. Finally, directly below, a couple of trades that I’m not at all excited about so I’m trading ½ the size I usually do. 

The first trade a pure scratch, and the second a couple of pennies per OZ. profit; so much resistance up here between 1241 and 1245, and the fact the market isn’t really moving anywhere, and I’m wondering if today is a waste of time. What bothers me is that the range for the day is small, and that makes trading later a potential disaster area if the bullion dealers decide to “bomb” gold quickly lower through the day’s low and set off sell stops to cover the selling they did over 1240; “it’s a distinct possibility”. Unless something happens to change today’s tune in gold, I’m done for the day here.

Didn’t realize until I looked this morning that Monday, February 20, 2017 is President’s Day and a market Holiday; banks, bond markets, and the NYSE are closed so we can celebrate [sure, the ones still alive did a “bang up” job didn’t they?] our glorious “Fearless Leaders” past to present. I had planned on starting PAMM/MAM trading this Monday, but I’m going to be partying so hard like it’s New Years Eve 1999 in celebratory mode along with the rest of the nation and other traders, I don’t think anybody will be at their computer screens but me. So, I’ll start trading the PAMM/MAM on Tuesday instead, as everybody returns back to work at their trading desks.

Since we start trading Tuesday, in tomorrow’s blog I’ll get into some detail on how I’ll trade the PAMM/MAM using the algorithm, as well as spell out new sections of the website I’ll be creating so everybody can easily follow what I’m doing day-to-day and week-to-week. 

“Yes, he has a one track mind!”

“Did you just say ‘bacon’? … hey, U driven da car? … somebody said bacon … I HEARD SOMEBODY SAY BACON! … was it you? … WAS IT YOU??... OMG I need some bacon”!

See what I got to put up with every day? Beach beckons … yea, don’t get your big girl panties bunched up, I got some bacon for ya”. I’m so outta here … until tomorrow.

Have a great day everybody!


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