Full time Index Future Day Traders? aka machinery of trading

SimpleMeLike · Oct 1, 2024

MarkBrown said:
It can be a daunting task to acquire an edge in trading, and even more challenging to find one that works consistently for day trading. For the sake of this discussion, let's assume you've moved beyond just searching for a profitable and consistent edge. You might think that your journey is at an end, but you'd be mistaken—your problems have just begun.

Trading to simply replace wages and supplement income, and then expanding into a full-time trader of size, is incredibly difficult. Many barriers prevent smaller traders from becoming large traders, and throwing money at the problem doesn't solve it either. Technology is constantly evolving, and the struggle to navigate through the maze has brought down many aspiring moguls, lol.

It reminds me of a small construction company that my family had decades ago. With four relatives and one hired hand, we made a good living earning $20k a month. Then we grew, took on more work, and increased our crew to forty men—only to start losing $20k a month. The moral of the story: bigger isn't always better. The grass often looks greener on the other side of the fence, but scaling up can bring a whole new set of challenges.

Setting Up a Colocation-Based Index Futures Trading Company: The Reality
Transitioning from small-scale trading to setting up a full-fledged index futures trading firm is one of those challenges. The process is not only resource-intensive but also incredibly complex. Here’s what it entails:

1. Colocation Infrastructure

Server Hosting and Latency Reduction: Using a colocation service means placing your trading servers in close proximity to the exchange's matching engine, drastically reducing latency. Colocation is essential for high-frequency traders (HFTs) and anyone looking for fast execution. Exchanges like CME, Nasdaq, and others offer colocation services, allowing traders to reduce the time it takes for orders to reach the market.

Connectivity and Redundancy: These colocation facilities offer high-speed, low-latency network connections, with redundancy features to ensure continuity of trading operations during technical disruptions. Advanced data centers like Nasdaq’s Carteret facility provide 40G connections to ensure your trading platform operates at the fastest possible speeds.

At this point I'm pretty sure you're thinking. I didn't want to go in business but to offset some of these cost it just might make sense to explore the following.

2. Regulatory Compliance

Commodity Futures Trading Commission (CFTC): Operating a futures trading firm requires registration with the CFTC. This applies if you plan to manage funds, offer trading advisory services, or use discretionary accounts. CFTC regulations also require latency transparency and equal access to prevent exclusion of smaller traders from the market.

National Futures Association (NFA) Membership: A futures trading company also needs to be a member of the NFA. Passing exams like Series 3 is mandatory for key personnel to legally engage in futures trading. This ensures compliance with the strict U.S. financial regulations governing futures.

3. Software Development and Testing Costs

Custom Trading Platform: Developing a robust, low-latency trading system is both expensive and time-consuming. A custom platform, tailored for index futures trading, can cost hundreds of thousands of dollars. It typically takes between 6 to 12 months to develop and fine-tune, factoring in algorithm design, trade execution speed, and risk management features.

Backtesting and Stress Testing: Rigorous backtesting is crucial to ensure the trading algorithms perform well under real-market conditions. This involves simulating trades based on historical data, which can be a costly and time-intensive process.

4. Capital Requirements and Operational Costs

Initial Setup Costs: Beyond server and colocation fees, initial capital must be allocated for hardware, software licenses, connectivity, and disaster recovery solutions. Depending on the firm's scale, these expenses can easily climb into the hundreds of thousands or even millions.

Scaling Challenges: Much like in the story above, scaling up a trading firm isn't just about adding more capital or personnel. Increasing the size of the operation adds complexity, requiring tighter compliance, higher technical expertise, and additional costs for risk management.

5. Ongoing Software and Licensing Costs

Licenses and Third-Party Tools: You may also need third-party software to supplement your infrastructure, such as data feeds or risk management tools. Licensing these tools can cost anywhere from $50,000 to $500,000 annually, depending on their capabilities.

The journey from individual or small-scale trading to a full-fledged trading firm, much like expanding a small construction business, is fraught with challenges. Scaling up adds complexity and costs that are not immediately apparent. Whether it's managing the technology, meeting regulatory requirements, or maintaining performance under high market volatility, trading at scale is a different beast. Bigger isn't always better, and sometimes, the challenges of growth can outweigh the initial benefits.

However, if you manage to weed through all the difficulties and get setup, you can make substantial profits. Just when you think the final hurdle has been jumped, here comes the tax man to feed off you like a vulture, and you wonder why you did this...

We haven't gotten into clearing rates, leasing or purchasing a membership and bookkeeping which will all have to addressed you have no choice.
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Hello MarkBrown,

My trading business is simple because I need this simple first, before I think about other stuff.

My setup is very simple.

1. Laptop -$400
2. Dual Monitors -$200
3. Key Board
4. Mouse
5. My brain and eyes.
6. +20 trades a day. 100 ES contracts per trade.

That is it. That is it. That is all my butt need.

SimpleMeLike · Oct 1, 2024

Hello ,

Can someone please explain to me what a HFT trader is?

How do we even know HFT trader is making a million dollars a year?

Maybe I am different or whatever, but trading should be much more easier then all this fancy stuff.

I could be wrong, but I think it is best to just fight the ES market all day from 8:30am to 3pm and get in there and get busy with whomever in this market.

Because even if HFT traders exist and making millions a day, week, month, or year, they will never share their secrets or algo with any of us anyway.

So, I think it is best to just get in there in the ES market, roll your sleeves up everyday, and get busy and get to fighting.

SimpleMeLike · Oct 1, 2024

MarkBrown said:
The journey from individual or small-scale trading to a full-fledged trading firm, much like expanding a small construction business, is fraught with challenges.
More...

Hello MarkBrown,

Great conversation.

My Trading firm will be much easier than that.

I will simply do this:

1. Hire 5 ES Traders
2. Put each one in their own office
3. One computer and dual monitor for each office.
4. AMP broker.
5. Work 8 hours a day.

One goal and mission objective for each of the 5 ES trader.

Each Trader make $1million per year or close to it by fighting the market everyday clicking.

That is it.

The point is: Non of my 5 ES traders have no business talking to me about anything fancy or algos or HFT if they have not made a million by hand yet and clicked over 100,000 times.

2rosy · Oct 1, 2024

MarkBrown said:
Would like to discuss everything but your trading lol.

Want to talk about clearing, software, data feeds, data centers etc.

But no psychological hang ups and personal issues either lol.

Daum might not be anything worth discussing.....
More...

back when humans were doing it TT was popular. cleared through some fcm or prime broker. don't think data centers were a thing. this was back at the turn of the century

Illini Trader · Oct 5, 2024

SimpleMeLike said:
6. +20 trades a day. 100 ES contracts per trade.
More...

Several months ago SML you had a disclaimer on every post that no one should listen to you because you were a losing trader and were trading sim. Now you tell us you are trading 100 ES contracts on each trade when your admitted trading plan is guessing? A one point move is 5K. You have said many times your goal is to become a millionaire so obviously you have substantially less than that now. Come on Man, a hundred contracts?? Are you suddenly living an imaginary life?

poopy · Oct 5, 2024

MarkBrown said:
It can be a daunting task to acquire an edge in trading, and even more challenging to find one that works consistently for day trading. For the sake of this discussion, let's assume you've moved beyond just searching for a profitable and consistent edge. You might think that your journey is at an end, but you'd be mistaken—your problems have just begun.

Trading to simply replace wages and supplement income, and then expanding into a full-time trader of size, is incredibly difficult. Many barriers prevent smaller traders from becoming large traders, and throwing money at the problem doesn't solve it either. Technology is constantly evolving, and the struggle to navigate through the maze has brought down many aspiring moguls, lol.

It reminds me of a small construction company that my family had decades ago. With four relatives and one hired hand, we made a good living earning $20k a month. Then we grew, took on more work, and increased our crew to forty men—only to start losing $20k a month. The moral of the story: bigger isn't always better. The grass often looks greener on the other side of the fence, but scaling up can bring a whole new set of challenges.

Setting Up a Colocation-Based Index Futures Trading Company: The Reality
Transitioning from small-scale trading to setting up a full-fledged index futures trading firm is one of those challenges. The process is not only resource-intensive but also incredibly complex. Here’s what it entails:

1. Colocation Infrastructure

Server Hosting and Latency Reduction: Using a colocation service means placing your trading servers in close proximity to the exchange's matching engine, drastically reducing latency. Colocation is essential for high-frequency traders (HFTs) and anyone looking for fast execution. Exchanges like CME, Nasdaq, and others offer colocation services, allowing traders to reduce the time it takes for orders to reach the market.

Connectivity and Redundancy: These colocation facilities offer high-speed, low-latency network connections, with redundancy features to ensure continuity of trading operations during technical disruptions. Advanced data centers like Nasdaq’s Carteret facility provide 40G connections to ensure your trading platform operates at the fastest possible speeds.

At this point I'm pretty sure you're thinking. I didn't want to go in business but to offset some of these cost it just might make sense to explore the following.

2. Regulatory Compliance

Commodity Futures Trading Commission (CFTC): Operating a futures trading firm requires registration with the CFTC. This applies if you plan to manage funds, offer trading advisory services, or use discretionary accounts. CFTC regulations also require latency transparency and equal access to prevent exclusion of smaller traders from the market.

National Futures Association (NFA) Membership: A futures trading company also needs to be a member of the NFA. Passing exams like Series 3 is mandatory for key personnel to legally engage in futures trading. This ensures compliance with the strict U.S. financial regulations governing futures.

3. Software Development and Testing Costs

Custom Trading Platform: Developing a robust, low-latency trading system is both expensive and time-consuming. A custom platform, tailored for index futures trading, can cost hundreds of thousands of dollars. It typically takes between 6 to 12 months to develop and fine-tune, factoring in algorithm design, trade execution speed, and risk management features.

Backtesting and Stress Testing: Rigorous backtesting is crucial to ensure the trading algorithms perform well under real-market conditions. This involves simulating trades based on historical data, which can be a costly and time-intensive process.

4. Capital Requirements and Operational Costs

Initial Setup Costs: Beyond server and colocation fees, initial capital must be allocated for hardware, software licenses, connectivity, and disaster recovery solutions. Depending on the firm's scale, these expenses can easily climb into the hundreds of thousands or even millions.

Scaling Challenges: Much like in the story above, scaling up a trading firm isn't just about adding more capital or personnel. Increasing the size of the operation adds complexity, requiring tighter compliance, higher technical expertise, and additional costs for risk management.

5. Ongoing Software and Licensing Costs

Licenses and Third-Party Tools: You may also need third-party software to supplement your infrastructure, such as data feeds or risk management tools. Licensing these tools can cost anywhere from $50,000 to $500,000 annually, depending on their capabilities.

The journey from individual or small-scale trading to a full-fledged trading firm, much like expanding a small construction business, is fraught with challenges. Scaling up adds complexity and costs that are not immediately apparent. Whether it's managing the technology, meeting regulatory requirements, or maintaining performance under high market volatility, trading at scale is a different beast. Bigger isn't always better, and sometimes, the challenges of growth can outweigh the initial benefits.

However, if you manage to weed through all the difficulties and get setup, you can make substantial profits. Just when you think the final hurdle has been jumped, here comes the tax man to feed off you like a vulture, and you wonder why you did this...

We haven't gotten into clearing rates, leasing or purchasing a membership and bookkeeping which will all have to addressed you have no choice.
More...

bot.

mervyn · Oct 5, 2024

poopy said:
bot.
More...

some, but read between the lines.

mervyn · Oct 5, 2024

interesting…

shall we start the discussion on platform selection first?

SimpleMeLike · Oct 6, 2024

Illini Trader said:
Several months ago SML you had a disclaimer on every post that no one should listen to you because you were a losing trader and were trading sim. Now you tell us you are trading 100 ES contracts on each trade when your admitted trading plan is guessing? A one point move is 5K. You have said many times your goal is to become a millionaire so obviously you have substantially less than that now. Come on Man, a hundred contracts?? Are you suddenly living an imaginary life?
More...

Good Morning Illini Trader,

Yes I am. I'm just getting fucking busy man and trying my best to get rich as fast as I can.

mervyn · Oct 6, 2024

SimpleMeLike said:
Good Morning Illini Trader,

Yes I am. I'm just getting fucking busy man and trying my best to get rich as fast as I can.
More...

ever watched life of pi?