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ES Vol to low & Spread to high
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ES Vol to low & Spread to high

  #1 (permalink)
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ES Vol to low & Spread to high

It has been suggested to me by someone with much more trading experience than I that the emini S&P may not be such an great thing to trade. He does not actually trade the ES. So I wanted some opinions from people who do or have traded it. Basically he points to two things.

1. The volume is actually quite low. Or at least low when compared to some other things.
2. The spreads are way to wide. It seem good when compared to trading equities in the 1980s. But it is not good by today's standards. It make it much harder to make money. But of course not impossible

Just to be clear, I trade the ES. It seemed like a relatively good place to begin. So I am not bashing your favorite instrument. I am just curios what other traders think about how it compares to other instruments.


Cheers

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  #2 (permalink)
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  #3 (permalink)
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mcteague View Post
It has been suggested to me by someone with much more trading experience than I that the emini S&P may not be such an great thing to trade. He does not actually trade the ES. So I wanted some opinions from people who do or have traded it. Basically he points to two things.

1. The volume is actually quite low. Or at least low when compared to some other things.
2. The spreads are way to wide. It seem good when compared to trading equities in the 1980s. But it is not good by today's standards. It make it much harder to make money. But of course not impossible

Just to be clear, I trade the ES. It seemed like a relatively good place to begin. So I am not bashing your favorite instrument. I am just curios what other traders think about how it compares to other instruments.


Cheers

I am a bit confused.

The ES is one of the most liquid futures instruments out there (if not the most). With that liquidity comes the lowest/tightest spread, almost any time of day or night there is liquidity at every level which would be at most a 1-tick spread from the last.

Perhaps he is talking about trading ES through some unregulated market other than futures, like through a spot market or etc.

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  #4 (permalink)
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mcteague View Post
It has been suggested to me by someone with much more trading experience than I that the emini S&P may not be such an great thing to trade. He does not actually trade the ES. So I wanted some opinions from people who do or have traded it. Basically he points to two things.

1. The volume is actually quite low. Or at least low when compared to some other things.
2. The spreads are way to wide. It seem good when compared to trading equities in the 1980s. But it is not good by today's standards. It make it much harder to make money. But of course not impossible

Just to be clear, I trade the ES. It seemed like a relatively good place to begin. So I am not bashing your favorite instrument. I am just curios what other traders think about how it compares to other instruments.


Cheers

I agree with your friend ("emini S&P may not be such an great thing to trade") but not his reasons.

Volume in ES is very good (at least for systems I trade it with), and the spread is almost always 1 tick ($12.5 per contract), which is pretty comparable to other major futures products (CL is usually $10, EC is usually $12.5, Gold is around $10). Maybe your friend is comparing futures to equities with his volume and spread assertions.

The problem I see with ES is that many days it goes nowhere, and seems to be a lot of computers fighting over a tick or 2 here or there. For me, that is what makes it tough to trade.

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  #5 (permalink)
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Well I think he is comparing the ES to equities and or currency. And I suppose that technically he is not criticizing the spread as much as the tick level. Leaving commissions on the side for the moment, if you go in and out with no price change you are out $25 per contract. This has a huge mathematical affect on what kind of positions you can take. At least as far as I understand probabilities.

But as I say he is an equities guy. And he may not really know the futures market. Because he also commented the ES did not seem to correlate to the S&P as well as thought it should. And his perspective on volume may also be off, since this is someone who makes trades a lot of shares.

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mcteague View Post
if you go in and out with no price change you are out $25 per contract.

Just to clarify...

Bid 1466.75
Ask 1467.00

If you buy, you'd pay 1467.00. If you immediately sell (no price change), you'd sell at 1466.75. So, you lose 1 tick, or $12.5.


Normally, when I include market order slippage costs into a trading model, I usually assume around 1.5 ticks slippage per round turn - $18.75 in this case.


I'd be curious why he says ES doesn't correlate with S&P. If this is true, there would be people arb'ing it until it did. I'm sure there are HFTs doing just that. Maybe he is seeing time delay quote effects?

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  #7 (permalink)
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Thanks for the correction. I often buy and sell at market, so I seem loose a tick here and there on every trade. My stupidity is not a condition of the ES. Although that is probably a typical beginners mistake. It is much less often than we think that we need to get in or out instantly and can not wait for a fill at our price.
Yes it is $12.50

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  #8 (permalink)
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Based on what you have said, either your friend is completely wrong about everything he said, or you have misunderstood him.

The ES is the most liquid futures contract in the world.

The ES is very closely arb'd with the cash index; look at a chart and compare for yourself.

Due to high liquidity, the ES is virtually slippage-free. You will pay the spread and nothing more 19 times out of 20.

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  #9 (permalink)
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Well it would not be the first time, and probably not the last, that I have been totally wrong. Most likely I have misunderstood what he intended. But to be honest I am glad the answers came as they did. It would have been disappointing to hear "only suckers play the ES anymore. The smart money is in currency". or some such thing.
I will have to check next time I see him.

Thanks to all for replying.

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  #10 (permalink)
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I got home and reread and have two quick things:

1) Daily volume on the ES ranges from 1 million on a slow day to 2.5 million or so on a very volatile day (ballparking). So in this sense, yes, it can't compare to the, say, tens of millions of shares that trade on AAPL alone. But this is futures, and it's leveraged--with 1 contract of ES you control 1460*50 = $73000. $0.25 makes or costs you $12.50 with the ES, $0.25 makes or costs you $0.25 in a stock (though I know some people leverage stocks as well, but not 50 to 1 as in ES).

2) I understand that your friend is saying that the tick size for ES is 25 cents, whereas with a liquid stock it is much smaller, as in 2 to 5 cents since decimalization. This is true, and an immediate buy and sell will be cheaper with a stock than with the ES. Your friend has a good point and all I can say is, if you want to play, you have to pay in this case.

I wanted to write this because I misunderstood what you were saying earlier about #2, and didn't mean to imply that your friend is ignorant about this. This one is a valid point.

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