Differences in profits in lowly-leveraged day-trading futures vs ETF equivalents

P

pers

I have an automated trend-following system that day-trades futures profitably on a 5-minute time frame with 2 round trades per day on average. Since my brokerage (TradeStation) has Roth accounts only for equities (without the extra cost of using an intermediary company), I'm wondering if I can be as profitable applying the same system to the futures' ETF equivalents (like SPY for ES and QQQ for NQ). The PnL should be almost identical in terms of percentage because the buy/sell signals timing will be almost identical since the price movements will be almost identical for the future-ETF pairs. But my question is about dollar PnL.

I know two advantages of futures are leverage and tax. The tax advantage won't apply since this is a Roth account and gains won't be taxed. As for leverage, if I am only using a low 2:1 or 3:1 leverage in my futures trading, which can also be replicated in ETF trading, can we say that the leverage advantage also won't apply and thus conclude that there won't be any notable difference in my dollar PnL across ETFs and futures?

Edit: ETF trading will be cost-free but futures have a $4 round trade cost. Let's ignore that for simplicity.
 
Last edited:
pers said:
I have an automated trend-following system that day-trades futures profitably on a 5-minute time frame with 2 round trades per day on average. Since my brokerage (TradeStation) has Roth accounts only for equities (without the extra cost of using an intermediary company), I'm wondering if I can be as profitable applying the same system to the futures' ETF equivalents (like SPY for ES and QQQ for NQ). The PnL should be almost identical in terms of percentage because the buy/sell signals timing will be almost identical since the price movements will be almost identical for the future-ETF pairs. But my question is about dollar PnL.

I know two advantages of futures are leverage and tax. The tax advantage won't apply since this is a Roth account and gains won't be taxed. As for leverage, if I am only using a low 2:1 or 3:1 leverage in my futures trading, which can also be replicated in ETF trading, can we say that the leverage advantage also won't apply and thus conclude that there won't be any notable difference in my dollar PnL across ETFs and futures?
More...
Is your ROTH with a zero commission broker?
Years ago I found it less expensive to trade leveraged ETFs rather than futures. Was trading with IB at the time. penny a share commission on ETFs and a couple bucks each way for futures.
 
Edit: ETF trading will be cost-free but futures have a $4 round trade cost, which in an account size of 100K, that will be only ~ $2000 per year. Let's ignore that for simplicity.

Do you see any other differences affecting PnL across ETF and futures?
 
pers said:
Edit: ETF trading will be cost-free but futures have a $4 round trade cost, which in an account size of 100K, that will be only ~ $2000 per year. Let's ignore that for simplicity.

Do you see any other differences affecting PnL across ETF and futures?
More...
2% is 2% ignore it if you'd like.

The other difference is the time the markets are open to trade.
 
deaddog said:
2% is 2% ignore it if you'd like.

The other difference is the time the markets are open to trade.
More...

Thanks for the thought but that won't apply since I'm just day-trading during regular hours.
 
pers said:
I have an automated trend-following system that day-trades futures profitably on a 5-minute time frame with 2 round trades per day on average. Since my brokerage (TradeStation) has Roth accounts only for equities (without the extra cost of using an intermediary company), I'm wondering if I can be as profitable applying the same system to the futures' ETF equivalents (like SPY for ES and QQQ for NQ). The PnL should be almost identical in terms of percentage because the buy/sell signals timing will be almost identical since the price movements will be almost identical for the future-ETF pairs. But my question is about dollar PnL.

I know two advantages of futures are leverage and tax. The tax advantage won't apply since this is a Roth account and gains won't be taxed. As for leverage, if I am only using a low 2:1 or 3:1 leverage in my futures trading, which can also be replicated in ETF trading, can we say that the leverage advantage also won't apply and thus conclude that there won't be any notable difference in my dollar PnL across ETFs and futures?

Edit: ETF trading will be cost-free but futures have a $4 round trade cost. Let's ignore that for simplicity.
More...

Couple things. 1) I don't think they will be as close as you think, in terms of triggering signals. I don't know what your components are, but I'd definitely backtest SPY verse ES and QQQ verse NQ. 2) You will have significant capital issues using ETFs, as you won't have any daytrading margin. I'd think you have to wait 2 days to be able to use that capital again, due to settlement in a Roth, but you'd have to check. 3) $4 is significant in terms of ETFs verse Futures IMO. If you are saying it's not, I think your system isn't as strong as you are thinking. How much per futures contract are you expecting? I wouldn't think over $30 to $40 per trade is going to be achievable over a long-run. While saying that $4 on $30 or $40 isn't too bad, but just concerned you are expecting a gain that may not be achievable.
 
Actuarial_Fun said:
Couple things. 1) I don't think they will be as close as you think, in terms of triggering signals. I don't know what your components are, but I'd definitely backtest SPY verse ES and QQQ verse NQ. 2) You will have significant capital issues using ETFs, as you won't have any daytrading margin. I'd think you have to wait 2 days to be able to use that capital again, due to settlement in a Roth, but you'd have to check. 3) $4 is significant in terms of ETFs verse Futures IMO. If you are saying it's not, I think your system isn't as strong as you are thinking. How much per futures contract are you expecting? I wouldn't think over $30 to $40 per trade is going to be achievable over a long-run. While saying that $4 on $30 or $40 isn't too bad, but just concerned you are expecting a gain that may not be achievable.
More...

Thank you. I will inquire about capital but you must be right about the settlement time. Moroever, because if I'd be trading ETFs in a Roth account, I would have the IRS contribution limit so I can not put capital in that account freely as I can put capital in my individual futures account.

My system is a simple moving average crossover trend following one and just uses price as input. You are right that SPY-ES etc. do not track each other that closely. I was a little bit simplifying things in my original post. So, for example, the winning moving average cross-over used in my ES backtest may be (10, 15) while in the SPY equivalent, it may be (8, 13) but my point was that when you look at the equity curves resulting from these strategies in terms of percentage, the two curves will track each other pretty closely and that is why I'm calling the strategies equivalent. For example, if on one specific date, the ES strategy loses 2%, the SPY strategy will also lose very close to 2%. So, for me, I can see them equal in PnL (%) and be indifferent to which one I am trading as far as that is concerned. But my difficulty is in conceiving the PnL ($) between such two analogous strategies.

I just checked the backtest for 1 NQ contract since 2020:
No trades (the system does not trade when it predicts the day to be a whiplash): 36% of days
positive daily PnL : 33% of days, avg size: $1648
negative daily PnL : 31% of days, avg size: $-1512
Total PnL since 2020: $123,000

So, you can see that the $8 cost (2 round trades/day) is not very significant considering the avg daily pnls. I'm not saying that is not an advantage of ETF but I'm trying to gather all pieces of information.
 
Last edited:
pers said:
Thank you. I will inquire about capital but you must be right about the settlement time. Moroever, because if I'd be trading ETFs in a Roth account, I would have the IRS contribution limit so I can not put capital in that account freely as I can put capital in my individual futures account.

My system is a simple moving average crossover trend following one and just uses price as input. You are right that SPY-ES etc. do not track each other that closely. I was a little bit simplifying things in my original post. So, for example, the winning moving average cross-over used in my ES backtest may be (10, 15) while in the SPY equivalent, it may be (8, 13) but my point was that when you look at the equity curves resulting from these strategies in terms of percentage, the two curves will track each other pretty closely and that is why I'm calling the strategies equivalent. For example, if on one specific date, the ES strategy loses 2%, the SPY strategy will also lose very close to 2%. So, for me, I can see them equal in PnL (%) and be indifferent to which one I am trading as far as that is concerned. But my difficulty is in conceiving the PnL ($) between such two analogous strategies.

I just checked the backtest for 1 NQ contract since 2020:
No trades (the system does not trade when it predicts the day to be a whiplash): 36% of days
positive daily PnL : 33% of days, avg size: $1648
negative daily PnL : 31% of days, avg size: $-1512
Total PnL since 2020: $123,000

So, you can see that the $8 cost (2 round trades/day) is not very significant considering the avg daily pnls. I'm not saying that is not an advantage of ETF but I'm trying to gather all pieces of information.
More...

I see. You are not incorporating volume, just closing price (at least for most part) so doesn't differ much between NQ and QQQ, for example. For your PNL, are you averaging $136 for all trades combined. Wasn't sure if I understood that right.
 
You must log in or register to reply here.
Back
Top