Tradesports announces new fee structure.

Posted on June 21, 2007 by Caveat Bettor

I don’t like it that much:

Thursday, Jun 21, 2007

TradeSports has announced that it will introduce an entirely new fee structure for its members. This will go live on 27th June 2007*.

The new fee structure will mean:

  • Trading Fees of 5c per lot and Expiry Fees of 10c per lot will be withdrawn.
  • Members will pay a simple commission of 4% of the profits they make from trading on a TradeSports market (a market is an individual contract or a group of linked contracts).
  • Trading profits before the expiry of an event may generate a commission, but it will be your overall net profit on settlement of the event that will dictate your net commission payable.

More detailed information will be made available on the site closer to the go-live date.

*Unless we advise an updated go-live date.

It works out to 20 cents for each $0-10 contract on average. That’s in addition to the float of 2 bips per day for account funds on deposit. But due to the first mover advantage which results in a liquidity edge plus the current legislation, competing for market share is hard for a new entrant, so TS has pricing power for now.

I’m still going to trade. But I trade small. I wonder about some of the bigger fish that swim here, if they will be disincented by the new fees.

I’d rather see:
1) double the liquidity and half the proposed fee rate
2) 50% of the fees to be assessed on expiry
3) 75% of the fees to be assessed to the liquidity taker
4) -25% of the fees to be assessed (i.e. a rebate) to the liquidity provider

This works for exchanges like Island. I always try to route my trades there, because they pay me to add liquidity. While the liquidity taker pays more, the spreads on contracts should tighten up, there by offsetting some of the cost under the old fee schedule.

Cross-posted from Caveat Bettor.

About Caveat Bettor

Prediction Market Trader (and a Proprietary Trader and Risk Manager, working for a few investment banks for more than 20 years) - North America
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One Response to Tradesports announces new fee structure.

  1. Eric Zitzewitz says:
    June 21, 2007 at 7:10 PM

    “It works out to 20 cents for each $0-10 contract on average.”

    Not to sound like an Intrade apologist, but I think your math is wrong.

    Think of a person buying a binary contract at p that has a probability p of paying off and holding to expiry.

    With no fees, expected value is p*(1-p)-(1-p)*p = 0.

    With this fee structure, EV is 0.96*p(1-p)-(1-p)*p.

    I.e., expected fees are 0.04*p*(1-p). This is a parabola with a peak at 1% at p = 0.5. So worst case, this is like roundtrip fee of 10 cents per $10 contract. For a contract priced at 0.9 or 0.1, fees are a little less than 4 cents.

    So maybe a little better than the current structure, actually. And assuming people understand it, this structure should help with some of the weird fee generated trading and non-trading at extreme prices.

    I do miss the 2005 level of fees though. I honestly whether volume wouldn’t more than double if fees were halved.

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