Any options or futures traders out there?

I want to know what transactions costs are.

In fact, I\’d like to know what transactions costs on a few contracts are.

Now, in detail, I don\’t really know all that much about futures and or options. But I need to find out a bit.

So, this applies to pretty much anything. Oil, currencies, interest rates, wheat. Would be nice to get information on a selection of them.

Now, here\’s what I need to know.

1) What\’s the nominal size of the contract? $1 million? $10 million? $100,000? This is the underlying nominal sum, not whatever premium might be paid for in the money, out of the money whatever. What\’s the actual contract size?

2) What\’s the bid/ask spread as a cost over the whole contract? That it\’s .45/.50 doesn\’t help me very much. I want to know what is the total cost of the bid/ask over the whole nominal sum of the contract? Is is $10 on $100,000? $90,000 on $1million?  Obviously, I rather expect it to be more like the former.

3) What are the other transactions costs? Fee to the clearing house (yes, would prefer to be talking about exchange traded here), whatever other charges get dumped on it. These fees might be per contract or per transaction so make that clear: whether there\’s a $50 fee for a transaction or it\’s $50 for each contract in a transaction.

Now, the reason I want this info is because I\’ve been asked to do a paper on the FTT. And I\’ve also got (from a proponent of the FTT an estimate of the elasticity. How much should we expect volumes to decline as a result of an increase in costs? I know what the tax being proposed is: now what I need to know is what are current transaction costs so that I can see what we\’d expect the change in volume to be as a result of the tax.

And the tax applies to the gross nominal sum, the underlying, not any premium paid for a future or option. So that\’s why I need to know the transactions costs as a piece of the underlying nominal. What the premiums are just doesn\’t matter here.

So, anyone want to try giving me some real world numbers? I could of course go ask one of the exchanges but thought I\’d ask you guys first.

 

8 thoughts on “Any options or futures traders out there?”

  1. I think you need to focus on one specific contract — there’s too much variety to do a scattergun approach.

  2. Which contracts / assets do you want the pricing / charges on.

    If it’s BP for example, BP Dec 4.30 calls are currently tradinig 19/ 21.50

    The contracts are for 1,000 shares, so it’s .21.50 * 1000 to buy 1 call. (£ 215)

    Based on the bid at the same time, if you were to concurrently sell the option at .19, your proceeds would be £ 190, so your spread is effectively £ 25 on an option costing £ 215.

    Your exposure for 1 contract is 1,000 shares, which at the market price of £ 4.30 per share is therefore £ 4,300

    But of course you never pay the ask, nor accept the bid. Put a limit on either and wait to get hit.

    But as Matthew2 said, charges and contract size are very asset specific

    Tim adds: OK. So, £25 spread on 4,300 nominal underlying. 0.58%. So, a 0.01% tax on that underlying really doesn’t change anything very much. That’s exactly the sort of info I’m looking for.

    I have a feeling that the numbers on currencies or interest rate#s would be rather differnt though…..

  3. Currency and interest rate futures (As opposed to options) trade on much large contract sizes, so the impact of any tax is likely to be higher. Depending on the exchange, futures tend to trade in £ 100,000 lots as a minimum.

    If you are looking for real impact, have a look at CDS, where the unit sizes are typically £10M plus. However there is no exchange involvement (CDS contracts are still essentially private contracts) so I’m not sure there are any proposed tax implications. However there are voices out there calling for CDS to be moved to exchange trading,to provide greater ‘visibility’ (yeah right) so feel free to draw your own conclusions here.

  4. I trade US stock options; total premiums vary but average around US 25c – 70c per lot from my broker, one lot representing 100 of the underlying stock. So trading 100 lots (i.e. option on 10,000 of the underlying stock) adds broker, exchange & regulatory fees of around $30-$80. That applies equally whether the underlying stock is $1 or $1000. The Option Regulatory Fee is $0.0225 per lot. The SEC fee of $0.0000192 per $1.00 of sale transactions applies too. Oh and to make it even more complicated, volume discounts apply on the broker charged fee but I rarely trade more than 2000 lots per month so I never see those.

    bit.ly/nneUMm

    My brain hurts.

  5. @X thnx for the link – I hadn’t actually thought about how much the FTT might affect me as a small trader – I tend to trade around the monthly option cycles and occasionally swing trades, rarely day trades. At a very rough guess it might double my total fees from about 5% to 10% as most my trades are in options.

  6. Most securities aren’t exchange traded: the ones that are include equities, and futures contracts on equities, bonds, interest rates, and commodities. Equity options are exchange traded, but in Europe most of the volume is OTC.

    It’s naive to think that an FTT would increase spreads by the amount of the tax. The tax would destroy the profitability of high-frequency trading. You might approve of that, but the effect would be to decrease liquidity and market-makers would increase their spreads by a lot (quantifying this is not easy) to reflect the increased risk of sudden large price moves.

    The thinking behind exchange-trading of CDS is that with the current set-up, there is no way to trade out of a position unless the original counterparty agrees, so that there are large volumes of offsetting contracts in existence. So if a major player were to default, it might take down a lot of other players with it. Hence the very expensive bail-out of AIG.

  7. I might be able to help with Energy – Oil, Gas, Power etc. I’m back office, but have got some visibility on stuff. Gas tends to be therms/d, or MMBtu/m. Happy to dig around and ask a few questions.

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