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Strange


Total Posts: 1616
Joined: Jun 2004
 
Posted: 2019-12-26 06:37
Does anyone have any positive experiences with DMA futures brokers?

My parameters are
- single exchange (CFE)
- relatively small account (under USD10)
- quasi-MM strategy

I can compromise on some features but would like to get specifics for multiple vendors and compare. Any suggestions welcome and I'll owe you a beer or two regardless of the outcome.

"In Russia, every CDS ends in bullet payment"

nikol


Total Posts: 909
Joined: Jun 2005
 
Posted: 2019-12-26 12:44
IB used to provide colocation. Cannot find anymore.
https://www.interactivebrokers.com/en/index.php?f=1338

No need for beer. It's only guess.

EspressoLover


Total Posts: 391
Joined: Jan 2015
 
Posted: 2019-12-28 18:58
I've generally had good experience with Advantage.

If you're doing DMA, the broker is mostly a commoditized product. The only relevant dimensions is the commission schedule, fixed cost for colocation, and intraday margin requirements. Account size doesn't matter, just volume.

My general experience is that the off-brand discount brokers tend to give much better pricing than the bulge bracket firms.

Good questions outrank easy answers. -Paul Samuelson

Strange


Total Posts: 1616
Joined: Jun 2004
 
Posted: 2019-12-28 21:32
@EspressoLover
First of all, thanks! Using an off-brand broker makes a lot of sense, I'll direct my search that way.

I've never had to do this myself, so forgive my ignorance/silliness.

First of all, how do the risk/margin/compliance checks work if I trade DMA? Do they have a separate risk check box colocated locally or do they even install something on your box? At a shop X (not to be named here), I had to deal with a prime who told me that I'll be pinging a box in midtown Manhattan (from NY4) to get the orders approved which took like 6 milliseconds (of course, they told me that AFTER I setup colo).

How exactly do colocation charges work is that on top of what I'd pay to a data center? Again, at my old shop we used Options IT and they charged me an arm+leg+testicle, but I don't think the prime was charging anything extra.

Finally, I was under impression that they can't have the margins lower than OCC requirements or is that not so?

"In Russia, every CDS ends in bullet payment"

nikol


Total Posts: 909
Joined: Jun 2005
 
Posted: 2019-12-28 21:45
Found it.
IB Gateway / FIX CTCI

https://www.interactivebrokers.com/en/index.php?f=4945&p=requiredminimums

if I understood you correctly and you are fine with ~5 ms latency, then usually it is a matter of choosing same or close data center.

Strange


Total Posts: 1616
Joined: Jun 2004
 
Posted: 2019-12-29 00:23
@nikol
Sorry, I mean to reply before that IB is pretty much a non-starter.

For starters, they have lousy latencies (5 ms +, as you said). Then their commissions are rather egregious - e.g. 10k contracts/month would bring me to 7 cents at Advantage and only to 0.5-0.25 at IB. Finally, for my product, IB has ridiculous margin requirements that are tiered by long and short.

"In Russia, every CDS ends in bullet payment"

EspressoLover


Total Posts: 391
Joined: Jan 2015
 
Posted: 2019-12-29 06:35
On a day-to-day basis, you're pretty much never interacting with the broker in a proper DMA setup.

At the beginning of the trading day, your co-located quoter machine subscribes to the market data multicast feed, then opens a direct TCP socket with the exchange gateway(s). Orders are sent directly from your box to the exchange gateway, and never intermediate with the broker. (Same for responses from the exchange.)

At the end of each trading day, the clearing broker "settles up" with the exchange on your behalf. Crediting/debiting any trading PnL, exchange fees, monthly market data and access fees, etc. As well as the brokers' own commissions and fixed fees. Unless this process breaks, your only interaction is reconciling the end-of-day account statement.

On modern exchanges the pre-trade risk checks are done inside the exchange gateway. This makes it so that all participants go through exactly the same checks and no one's disadvantaged latency-wise. At CME this system is called ICC. At NASDAQ-based exchanges its called PTRM. Same principles. The clearing broker sets limits for each client account, and the exchange software enforces those limits.

Changes to these risk limits are only suppose to be made by a human functionary at the broker. So, this is the only channel in the relationship where customer service matters. Particularly if you're frequently re-allocating working capital between instruments.

The broker can also run post-trade checks on their own systems. They'll get a near real-time duplicate of all your activity at the exchange through "drop-copy" functionality. It lets them monitor each client's positions, open orders, and trades in near real-time. If they don't like what they see for whatever reason, they can flip a "kill-switch" with the exchange, which instantly disconnects your session. Obviously this is all asynchronous and irrelevant to latency concerns.

Between the in-exchange pre-trade checks and the drop-copy post-trade checks, that's more than enough risk control for nearly any setup. Any broker that demands they intermediate your orders through their own risk control system is full of shit. Drop them like a bad habit, since the extra hop will obliterate the DMA latency advantage.

By colo fees, I meant how most DMA-oriented brokers offer their clients sub-leased cabinet space in the datacenter. It's kind of nice, especially when starting out to keep fixed expenses lower. Instead of directly leasing an entire half-cabinet from the exchange, you can sub-lease 1U or 2U of rack-space for a lot less. Along the same lines most of the brokers in the space can arrange a seat lease/sale. But if you want to bring your own colo cabinet or exchange membership, that works too. In that case the only thing you pay the broker are the clearing commissions.

In terms of margin, I can't speak directly to options. But for futures, only overnight margin is determined by the exchange. Intraday margin is at the discretion of the broker, and typically a lot lower than overnight. Also, if you're market making the margin requirements of open orders vs. actual positions is a relevant consideration. You could have very large "worst-case" positions, but tend to keep small portfolio positions. Sometimes if the broker's chill and you're doing a lot of business, you can get them to basically ignore the unfilled open orders for purposes of leverage determination.

Good questions outrank easy answers. -Paul Samuelson

Strange


Total Posts: 1616
Joined: Jun 2004
 
Posted: 2019-12-29 07:23
@EspressoLover
Dude, this is pure gold, thanks a bundle. Previous gig was very constrained since most of these arrangements were done for the full firm with "everyone needs in mind". I sort-of disjointly participated in decisions for some of these bits, but some were pretty obscure for me as I was 1-2 steps removed; now that I am flying solo I have to figure out these things on my own.

Lemme think if I have any more stupid questions. Meanwhile if you want to collect that beer (or dinner, considering!), lemme know!

"In Russia, every CDS ends in bullet payment"
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