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Why dont people trade 150 ES contracts?


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Why dont people trade 150 ES contracts?

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  #1 (permalink)
 Avi24 
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Hiya! I'm new to FIO and a relative newbie to trading. Ive got a question and hope I dont sound to naive..
I currently trade the ES futures market so my question is regarding the ES.
I've been trying to understand why more people dont trade 150-200 contracts at a time. When watching the DOM I see a decent amount of such orders. Yet,from what Ive seen,most retail traders dont buy in such large quantities. Why dont people generally scale up to large level orders like those? Is it because of slippage? Partial fills? Personal ceiling? I dont really think it would move the market in any way,so with proper risk management,why not? What am I missing? Basically,why arent people making millions by trading a large amount of contracts?

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 TheTradeSlinger 
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Do you understand what "margin" is in relation to futures contracts?

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  #3 (permalink)
 Avi24 
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TheTradeSlinger View Post
Do you understand what "margin" is in relation to futures contracts?

Yes,of course. I'm talking about using the same risk levels and margin as with lower contract sizes and using a larger account. For example, assuming 1 contract for a 10k account, with a 1.5m account,buy 150.
I'm assuming I am missing something,just not quite sure what..

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  #4 (permalink)
ondafringe
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Avi24 View Post
Hiya! I'm new to FIO and a relative newbie to trading. Ive got a question and hope I dont sound to naive..
I currently trade the ES futures market so my question is regarding the ES.
I've been trying to understand why more people dont trade 150-200 contracts at a time. When watching the DOM I see a decent amount of such orders. Yet,from what Ive seen,most retail traders dont buy in such large quantities. Why dont people generally scale up to large level orders like those? Is it because of slippage? Partial fills? Personal ceiling? I dont really think it would move the market in any way,so with proper risk management,why not? What am I missing? Basically,why arent people making millions by trading a large amount of contracts?

The following has to do with HFT, but still related... and (I think) interesting:

Here is a thread on this forum from late last year that might shed some light as to why.

And there are other issues to contend with if size gets too big.

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 tr8er 
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Avi24 View Post
Yes,of course. I'm talking about using the same risk levels and margin as with lower contract sizes and using a larger account. For example, assuming 1 contract for a 10k account, with a 1.5m account,buy 150.
I'm assuming I am missing something,just not quite sure what..

rofl, with 150 ES contracts you are moving a value of 35m

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 matthew28 
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Avi24 View Post
I've been trying to understand why more people don't trade 150-200 contracts at a time.

Even using intraday broker margins (For ES: Tradovate $550, Ninjatrader $500), and having $1,000 per contract in an account that would require a $150-200,000 account.
From broker anecdotes/stats, the impression is that most retail traders start with small accounts, trade excess size trying to make money fast, and quickly lose or blow their accounts. Especially those trying to daytrade small time frames or scalp, often again because they are trying to limit individual trade risk due to a too small account.
So they don't trade that size because they never have enough money and account size to do so and very few will.
(They are focused on how much they can make when they are a big player, and not prepared to trade micros or an appropriate number of contracts and settle with averaging a small amount per day and recognising that making any consistent profit will probably put them in the top 10% of futures traders. I am sure I remember reading in one of Mike Bellafiore's books that their SMB traders, when they begin trading real money, are only trying to make about $100/day. Less than the minimum hourly wage I imagine when hours are factored in but they are taking the long view, not the get rich quick view).

150 contracts on the ES means the trader makes or loses $7,500/per point (4 ticks). So in a second or two, sometimes less, they could be up or down that amount of money. I am not American but that I imagine is much more than one month's average full-time wage. Psychology is a large part of successful trading and that sort of size would be hard to deal with for the vast majority of the population. I don't know what size you have traded but a lot of people struggle with fear of loss trading even low single digit numbers of contracts.

I imagine that those who are trading large size are also often breaking up their orders. Looking at an ES DOM there are icebergs all over the place and frequently much more size will trade at a price than was initially there on the inside Bid or Ask. Hard to know how many individual orders are from one person but if trading 150 contracts they are unlikely, if consistently profitable, to be just hitting the buy/sell at market button to enter and exit all in/all out and much more likely taking advantage of trading size by managing their position and risk by scaling in and out with partial size units.

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  #7 (permalink)
 bobwest 
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Avi24 View Post
Basically,why arent people making millions by trading a large amount of contracts?


TheTradeSlinger View Post
Do you understand what "margin" is in relation to futures contracts?


Avi24 View Post
Yes,of course. I'm talking about using the same risk levels and margin as with lower contract sizes and using a larger account. For example, assuming 1 contract for a 10k account, with a 1.5m account,buy 150.
I'm assuming I am missing something,just not quite sure what..

You write that "I currently trade the ES futures market."

I think that if you actually trade with real money, not in sim, you will already understand the answers I am going to give.

But here goes:
1. If you do trade, you have both profits and losses. Unless you are very good or have been very lucky so far, beginners quickly get much more acquainted with losses, and with the risk of trading futures. A trader who is consistently making even small profits has gone a long way in his developmental journey as a trader. It usually takes years of work to become consistently profitable, and most never do.

2. You mention only needing 1.5 million. Do you have 1.5 million? And are you willing to expose it to the risk of total loss? I assume not. Those would be some other reasons. I'm not directing this to you in particular, but it is not often that someone has pockets that deep, and anyone who does is either extremely familiar with the risks of trading, or soon loses it.

3. Yes, there are very big traders, generally giant hedge funds and other institutional players. Having the capital and control of risk are important there -- as is the fact that huge traders are generally executing parts of a hedged strategy and are not seeking instantaneous riches by outright buying and selling, but instead have their risk well in hand via offsetting parts of the hedge, and whose expectations for gain are small, befitting their lower risk.

One could go on. The simplest answer is that if the way to great profits seems easy, that just means that the person who thinks so is mistaken. If it were, everyone would already be billionaires, which is actually kind of rare.

I don't know what your experience is, but everyone gets these ideas about easily making money at first. More experience changes their minds.

Bob.

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-- Cervantes, Don Quixote
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  #8 (permalink)
 wldman 
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Well. Many people do trade 100's of contracts and make millions. BUT the initial margin requirement on a /ES contract with a notional value of $227,750...calculated as $50 times the market price of 4555, is $6832.50 A 100 lot would require initial margin of almost $700,000. Many people with a deposit like that trade the "regular" SPU. The e-mini was developed in the late 90's mostly as a "retail tool" I believe.

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 kevinkdog   is a Vendor
 
 
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wldman View Post
Well. Many people do trade 100's of contracts and make millions. BUT the initial margin requirement on a /ES contract with a notional value of $227,750...calculated as $50 times the market price of 4555, is $6832.50 A 100 lot would require initial margin of almost $700,000. Many people with a deposit like that trade the "regular" SPU. The e-mini was developed in the late 90's mostly as a "retail tool" I believe.

I see an initial margin for ES of $12,650 per CME (see below), not $6833.

So 100 lot would require $1,265,000 - unless your broker has smaller day trading margins.

Maybe that is what you are referring to with $6833 - a day trading margin? Or maybe members have a lower margin requirement?


In any event, if you want to hold overnight 100 ES contracts, your account needs to have maintenance margin of $11,500*100 = $1,150,000.

Please correct me if I goofed here...


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  #10 (permalink)
 wldman 
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Brokers charge between 3% and 12% of notional for initial margin. I was quoting my rates, which are near the lower end of that.

But you are correct.

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