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Why are the ES futures in .25 increments? Seems to me would be easier to trade if it were in tenths. The fill rate is bad and might be better if in tenths. What do you think?
Can you help answer these questions from other members on NexusFi?
It was probably designed to make arbitrage more profitable. You would need to look at what the big contract traded (don't know). A wider spread in theory, also, discourages wash trading and encourages liquidity. If it traded in 10th's, just taking a guess here, but small traders would probably get better fills while larger traders might get worse fills. The larger tick size also probably discourages certain types of scalping. With a smaller tick size, a larger trader would move the price more and it would allow possible allow for more market order scalping.
A smaller tick size might also disadvantage manual limit order traders or discretionary traders because the HFT would be able to pull orders and stack orders on more levels. But, keep in mind that the spread doesn't solely determine how much liquidity that will be offered: the overall market dynamics are a big part. Basically, smaller ticks would in theory make market order scalping for small traders more feasible while disadvantaging the smaller trader on the limit order. However, it would also require reducing the built-in trading fees or else your fees would be a higher percentage of the tick size. There are quite a few variables, as you can see. The reason it disadvantages you on the limit order is the HFT would have a lower cost to front you but you get an advantage on the market order if it tightens the spread. There are a lot of variables in play, and I am not sure that anyone knows exactly what would happen: you might get better fills except when you needed them though.
Anyway, it is never going to change: and I wouldn't want the existing contracts to change. But, I would like to see a smaller contract with reduced trading fees about 1/2 to 1/4 the size of the standard emini. This would be useful for the smaller trader.
The full size contract is $250 a point though so five times the size of the mini.
Following on from what tpredictor said, I assume when it was introduced it was in quarter point intervals to increase liquidity on the Bid and Offer in the beginning to make it an alternative for large investors/traders seeking the advantages of anonymous order placement by computer rather than standing in the pit. Otherwise if it had been in tenths too it could have perhaps just been seen as a low liquidity cut price beginners version of the SP that wouldn't have been an option for those trading size. That's just a guess though which to me sounds kind of logical but possibly had nothing to do with it at all.
I wonder how long the SP will carry on trading. Yesterday it traded 1,400 contracts, the ES 1,250,000.
You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
