Once you get with a discount futures brokerage it is not the commissions that make it difficult to trade high frequency in the futures market but the cost of trading does.
On a recent analysis on one of my statements of fees, the breakdown is approximately 51% exchange fees, 26% data pipe fees (CQG), 13% clearing, 5% commission, and 5% NFA.
This is bad news because the only way to reduce the exchange fees to my knowledge is to pay $2,000 for membership and then $2,000 more to lease a seat. Please let me know if there is a cheaper option for lease for micros only.
The point is that there is not an easy or cheap way to reduce the biggest source of fees. As such, we should seek to increase our edge.
And, this leads into the second topic of discretionary scalping. Despite being an avid tape reader and developing my own order flow software, I have serious doubts about the viability of high frequency, pure discretionary scalping.
The reason I wanted to mention this is because I think this particular combination is especially bad. And, yet I know many traders seem to be aspiring to this model.
I am not suggesting that tape reading and discretionary style trading cannot add value. It is just the specific combination of high frequency with pure discretionary trading that seems especially poor choice. And, if anyone is doing this consistently, they are likely trading the most volatile markets and/or only using low leverage.
In specific, I recently seen an “order flow drill” promoted by another vendor. I won’t go so far as to say that the order flow drills that other vendors promote are complete nonsense, as they may have some marginal value. In fact, I did drills once where I forced myself, on the simulator, to trade constantly and it helped me to recognize when I had an edge better. But, the idea that these are legit trading methods, which they are being passed off, is highly doubtful in my mind.
On the other hand, what makes real sense to me, way more then doing drills or trying to scalp at high frequency without an edge is combining alpha signals with tape reading.
It is possible to do this in at least two ways. You can combine my BeyondBot software to automate your setups and read the market with my AlphaReveal software to tape read the market.
The second way is you can program your own signals and then tape read the market in the context of the signal.
In either case, you must be able to program/develop your own alpha signal unless I offer the Quantitative Advantage in the near future which I am strongly considering.
The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at firstname.lastname@example.org.
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