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SPY vs ES - commission and tax implications


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SPY vs ES - commission and tax implications

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  #1 (permalink)
Boston MA
 
Experience: Beginner
Platform: NT, TOS
Trading: ES
 
patrader65's Avatar
 
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With many vendors offering commission free ETF trading, I am wondering if SPY is an alternative to ES for intraday trading.

I tend to trade 3 to 5 ES contracts making 2 to 5 round trips per day. I am profitable but not by any wild imagination. Commissions are certainly a cost. On the flip side, blended tax rate for futures is a benefit. Tax filing is much easier as well, I dont have to list any transactions.

Welcome thoughts and comments on this topic. Thanks.

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  #2 (permalink)
Site Moderator
Sarasota FL
 
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patrader65 View Post
With many vendors offering commission free ETF trading, I am wondering if SPY is an alternative to ES for intraday trading.

I tend to trade 3 to 5 ES contracts making 2 to 5 round trips per day. I am profitable but not by any wild imagination. Commissions are certainly a cost. On the flip side, blended tax rate for futures is a benefit. Tax filing is much easier as well, I dont have to list any transactions.

Welcome thoughts and comments on this topic. Thanks.

Sent using the futures.io mobile app

You can add in the Pattern Day Trader Rule: to day trade stocks and ETF's you are going to need a minimum margin of $25,000.

Also, there is leverage. Day trading margin for stocks and ETF's is better (smaller) than the normal, non-daytrading stock/ETF margin, but not as highly leveraged as futures, which could be either bad or good, depending on your preference.

Normal stock/ETF non-daytrading margin leverage is a maximum of 2 to 1, meaning you need to put up half the purchase price and the broker will lend you the other half; with day trading, the max is 4 to 1, so you put up a quarter. With futures, there is not really a relationship directly to the contract price -- you are just putting up earnest money essentially to cover estimated price fluctuations. There is no exchange-set day-trading margin for futures (there are exchange requirements for non-day-trades), and your broker will generally require a fairly low amount if you close on the same day -- again, this could be either a good or a bad thing, depending on your appetite for risk.

Also, margin in the stock/ETF universe is collateral for borrowed money, and the broker is going to make money on the loan. I don't know what the fees associated with day trading margin are, but that's another thing to look into.

For many traders, the Pattern Day Trader rule and the different margin requirements will make a big difference.

Here's a good write-up on PDT: https://www.thebalance.com/how-to-day-trade-stocks-with-less-than-25-000-1031365 The title implies that you can get around it, but the text pretty well shows that you will have a hard time.

Bob.

------------------

Edit: here's a little better write-up on the pattern day trader rule, and it's from the official source, Finra (Financial Industry Regulatory Authority): https://www.finra.org/investors/learn-to-invest/advanced-investing/day-trading-margin-requirements-know-rules

Among other things, it clarifies the fact that day trading in stocks is only permitted in a margin account, so "cash" (non-margin) accounts cannot day trade at all in that particular trading world. (ETF's are not stocks, but they are traded on the same exchange and these rules apply.)

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  #3 (permalink)
Market Wizard
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patrader65 View Post
With many vendors offering commission free ETF trading, I am wondering if SPY is an alternative to ES for intraday trading.

I tend to trade 3 to 5 ES contracts making 2 to 5 round trips per day. I am profitable but not by any wild imagination. Commissions are certainly a cost. On the flip side, blended tax rate for futures is a benefit. Tax filing is much easier as well, I dont have to list any transactions.

Welcome thoughts and comments on this topic. Thanks.

Sent using the futures.io mobile app

The benefit of Futures is the notional amount you are trading(leverage). If you were to ask for leverage on equity products such as futures, you will pay an annual interest rate that is equal to some customer's initial deposit.

Thanks,
Matt Z
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  #4 (permalink)
Virginia
 
 
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patrader65 View Post
With many vendors offering commission free ETF trading, I am wondering if SPY is an alternative to ES for intraday trading.

I tend to trade 3 to 5 ES contracts making 2 to 5 round trips per day. I am profitable but not by any wild imagination. Commissions are certainly a cost. On the flip side, blended tax rate for futures is a benefit. Tax filing is much easier as well, I dont have to list any transactions.

Welcome thoughts and comments on this topic. Thanks.

Sent using the futures.io mobile app

I'm not sure how large your futures account is, but you will struggle to get the same buying power with SPY. At $50/ES point, 3 ES contracts buy $438,000 worth of SPY. Even at portfolio margin (4x), you would still need $110,000 in a stock account to control that much SPY. (And you may not get approved for 4x margin buying just SPY).

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  #5 (permalink)
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patrader65 View Post
With many vendors offering commission free ETF trading, I am wondering if SPY is an alternative to ES for intraday trading.

I tend to trade 3 to 5 ES contracts making 2 to 5 round trips per day. I am profitable but not by any wild imagination. Commissions are certainly a cost. On the flip side, blended tax rate for futures is a benefit. Tax filing is much easier as well, I dont have to list any transactions.

Welcome thoughts and comments on this topic. Thanks.

Sent using the futures.io mobile app

With no commission you might consider trading the 3x leverage ETFs. SPXL AND SPXS

When you talk you are only repeating what you already know. When you listen you might learn something new
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