Account opening on CME: conditions and pitfalls

Account opening on CME: conditions and pitfalls

Trading on CME is the top league. If you traded Forex, crypto and binary options, but it’s not enough for you, trading on the CME Group exchanges is the maximum level.

And, of course, there are specific features and difficulties at the maximum level. We will speak about them in this article. Read in this article:

  • Differences from the Forex and cryptocurrency markets.

  • Demo account.

  • Connecting to and buying quotations.

  • Procedure of submitting documents for account opening.

  • Brokerage technical support.

  • Brokerage commission fees.

  • Standard, Mini and Micro contracts – which one is more profitable?

  • Clearing.

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Differences from the Forex and cryptocurrency markets

Trading cryptocurrency and CFD (Contract For Difference) on Forex through Metatrader, traders may face some unpleasant issues. High exchange commission fees, high spreads, low-liquid assets, downturn of capitalization of the crypto-market in general, huge non-trading risks, insufficient knowledge, etc. Those who are searching for new markets and conditions would, sooner or later, come to the futures (what futures are) and stock exchanges. And the most interesting starts here, namely, everything is new.

The charts look similar but everything is ‘different’. CME doesn’t have the so-called asset purchase but has pledged collateral. Your broker himself provides collateral for intraday trading, while in order to roll the position overnight you need to have on the balance the amount of the initial margin (collateral), which is set by the exchange itself. The intraday margin is several-fold smaller than the initial margin. And there are a number of other specific features.

We decided to help our users to gain insight into some nuances of the procedure of the trading account opening.

One of the biggest advantages for futures traders is the safety of preservation of personal funds and minimization of non-trading risks. Your money will be kept not with your broker but with a clearing company on your personal account opened in your name. A trader may ask to withdraw his funds even in the event of the broker’s bankruptcy.

To make a choice you need to:

  • learn the conditions of trading;

  • test functionality of the trading platforms offered by brokers;

  • test the strategies on demo accounts.

Demo account

Exchange demo accounts differ from demo accounts in other markets.

  1.  A trading platform may provide a demo account. ATAS provides this functionality in the form of connecting ATAS Sim in connection settings. In other words, it is an emulation of trade opening and pending order posting inside ATAS. However, online quotations should be connected separately.
  2.  Demo account, which is opened with a broker. Many brokers provide this possibility but conditions could differ. Some brokers provide a possibility to open a demo account and get quotations for a limited period of time, as a rule, for 14 days. Other brokers provide a demo account automatically when a real account is opened. Many brokers provide demo accounts for the use namely on their trading platforms.
  3.  Paid quotations could be the biggest surprise for a trader who came from the Forex market or cryptocurrency exchanges. Further on, we will tell you in detail about connecting to and buying quotations. However, as a rule, the brokers’ fight for the customer makes them provide demo accounts with quotations for evaluation purposes, that is why ATAS users will find instructions in the Knowledge Base.

Important information about operation of popular demo accounts:

  •  CQG limited the number of possible simultaneous connections of demo accounts.
  •  Rithmic  allows demo registration only once since they bind connection to the user’s computer.
  •  Gain FUTURES demo quotations could become slower during the periods of high activity. It becomes rather problematic to test strategies during the American session at some moments.

Connecting to and buying online quotations

Online quotations for traders on exchanges could be paid and free.

1.    Free quotations could be obtained for the Moscow Exchange and individually for every cryptocurrency exchange. To do it you need to create a necessary connection, enter data for connecting and connect communication. You can find details in our video instructions using this link.

2.    You can get free quotations from the broker’s demo account for a limited period.

3.    In order to trade on a real account, a trader needs to connect to the paid online data. Theoretically, quotations from the demo account will do, but if you are based on analysis of the traded volumes and, especially, read the order flow and monitor the levels of the order book, you’d better use high quality data feed.

A specific feature is in the fact that you may buy online quotations from a broker when you open a real account or you may acquire quotations without account opening, for example, from the dxFeed company, which professionally deals with data translation for a big number of markets.

You can register a demo account, the connection of which is available in ATAS, for initial acquaintance with online data.

Procedure of submitting documents for account opening

We analysed a number of popular brokers, with whom CIS traders open trading accounts, and prepared a list of the main documents, required for opening an account. This procedure may differ with different brokers, that is why we united all items into one list for you to have an idea what could be required from a trader.

  1. Some brokers need a domestic passport while others ask only for an international passport.

  2. Supporting documents, for example, a statement from the bank in which you opened an account or utility service receipt, written in your name. Some brokers may need residency registration in the passport. They assured us in the support chat that the broker’s attitude would be tolerant in the event if the citizenship is changed and he will inform what information will be required for introducing changes.

  3. Personal resume should contain information about: criminal record (if any), relatives in state structures and banks, trading experience, what funds you plan to trade with, borrowed funds or not and so on. The procedure is rather boring and punctilious.

Brokerage technical support

We want to say a couple of words about the technical support of various brokers. We experienced different client service. Some brokers provide high quality services and accompany opening the customer’s account to the extent of communication by phone or skype. Other brokers are rather passive in this issue. Very slow feedback and communication only via chat. Of course, they will provide you with basic information but you will not always see a real care about the client. For example, some brokers do not provide details answering such questions as: Which bank provides more profitable, simple and quick bank transfer. What mistakes could be made when transferring money. Where to get a step-by-step assistance in transferring funds. That is why, we recommend you to pay attention to it, since this issue could turn out to be the key one at the moment of solving force majeure situations.

Account funds replenishment/withdrawal and tax payment

Account funds replenishment and withdrawal is carried out only through a SWIFT transfer. Besides, the name of the banking account, from which money arrived, should completely coincide with the name, on which the trading account was opened. This rule acts in connection with the law of laundering the money, received illegally.

Moreover, the commission fee for transfer of a popular amount, which the trader deposits on his account at the beginning – up to USD 10,000, starts with USD 15. If you send a request to withdraw funds, the broker also takes a commission fee, which is about USD 40, but could be different depending on your broker.

Also, an important aspect of trading is tax payment. Technical support of one of the American brokers registered in the State of Illinois responded as follows – if you are not an American citizen, you do not pay taxes in the US. Consequently, you need to calculate and pay taxes by yourself in accordance with the local legislation of your country.

An important issue. If your broker transfers money to your banking account, the taxation authorities may have questions regarding the source of money. In such a case, your broker could provide an official report about the type of funds and if they are a profit, a tax is calculated in the local taxation service.

In order not to violate the law, we recommend you to consult an accountant.

Brokerage commission fees

A very important issue when you select a broker is a proper size of commission fees. If you actively trade during a day, expenditures on the brokerage and exchange commission fees may reach 30% of the profit amount. If you execute trades just several times a week and hold your position several days, expenditures on commission fees will not be critical for you when you select a broker.

This issue also has many nuances. For example:

  • Some brokers offer special conditions if you use their own or their partners’ software.

  • You also can and should negotiate with a broker the issue of reduction of commission fees if you can provide a certain volume of trades.

  • If you are engaged in scalping or just actively trade several instruments simultaneously, do not hesitate to agree on individual size of commission fees.

  • Commission fee by default is ‘for one side’, which means that it is for opening and closing a trade. If you found information on the broker’s web-site that commission fee for 1 contract is, for example, USD 3, you would pay USD 3 for opening a trade and USD 3 for closing it.

  • You should also know that a part of the brokerage commission fee is exchange fee. Below is a table with a list of exchange and brokerage fees for the EUR futures (6E).

Exchange & NFA Order Routing Clearing FeeCOMMISSION
1.62$ 0.10$0 1.19
Exchange & NFAOrder RoutingClearing FeeCOMMISSION
USD 1.62 USD 0.10 0 1.19

That is, in this case, the ‘cycle’ commission fee would be (1.62 + 0.10 + 1.19) * 2 = USD 5.82. You may bargain with your broker for the COMMISSION item since this fee is a direct broker’s income. We communicated with the support service pretending that we are a potential scalper client who executes about 20 trades a day. The broker’s support service responded that they may reduce their commission fee maximum down to USD 0.50 ‘for one side’. It means that the ‘cycle’ commission fee would be USD 4.44 under these conditions. In such a case, 1 tick of the EUR futures would completely cover the commission fee expenditures. Also, the commission fee cost may increase depending on a data feed and trading account supplier. For example, we found out that if we use Rithmic, USD 0.25 would be added to the commission fee ‘for one side’. On an average, the ‘cycle’ commission amount with different brokers is within USD 5-8 range under standard conditions. Also, do not forget to ask your broker to activate trading via ATAS. By default, the function of opening trades might be inaccessible before you address your broker.

Standard, Mini and Micro contracts – which one is more profitable?

Micro contracts were introduced on CME for attracting more traders with smaller deposits.

The margin (both intraday and initial) and tick value reduce several-fold on micro contracts. You can find more details about specifications, advantages and disadvantages of micro contracts in this article.

But what about commission fees? Let’s compare commission fees for trading micro and mini contracts of one of the brokers for S&P 500 and Nasdaq 100 index futures.

  • E-mini S&P 500: 2.54*2 = USD 5.08 / 1 tick = USD 12.5, entry into the break-even area = 1 tick + USD 7.42 profit.

  • Micro E-mini S&P 500: 0.61 * 2 = USD 1.22 / 1 tick = USD 1.25, entry into the break-even area = 1 tick.

  • E-mini Nasdaq-100: 2.54 * 2 = USD 5.08 / 1 tick = USD 5,  entry into the break-even area = 1 tick.

  • Micro E-mini Nasdaq-100:  0.61 * 2 = USD 1.22 / 1 tick = USD 0.5, entry into the break-even area = 3 ticks + USD 0.28 profit.

This calculation shows that micro contracts need a bigger price progress for entry into the break-even area!

Clearing

To pass clearing, you should have funds on your trading account for securing a trade result (if it is negative) and initial margin, which is set by the exchange and not by the broker. If, at the moment of clearing, you do not have enough free funds on your account for securing the open position when transferring through clearing, your position will be closed at the average daily price, which is much worse than the market one, and you will be fined. That is why be attentive when you transfer your position through clearing!

Here’s a brief terminology explanation:

  • Intraday Margin – is set by a broker during a day.

  • Initial Margin – is an amount on the balance for rolling the contract overnight on the FIRST day!

  • Maintenance Margin – is an amount on the balance for rolling the position overnight on the second and subsequent days.

 

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