House advantage in day trading Equities vs Futures

[TD877]

Equities seem to be much more volatile in comparison to the bid/ask spread we have to pay to play them. Futures, on the other hand, don’t move many multiples of their bid/ask spreads on a given day.

Compare BAC to ES Mini:

BAC typical bid/ask spread = 0.01
Current movement for today = 0.40
Movement to spread ratio = 40

ES spread = 0.25
Current movement for today = 0.50
Movement to spread ratio = 2

To me it looks like the spread in BAC is less of an obstacle to overcome than the spread in ES. BAC moves so many times it’s spread that the spread becomes closer to negligible. With ES, even if you predict the correct direction of movement, a large percentage of that will go to paying the spread.

So why are futures considered better for day trading? Is it simply because of the leverage, or am I missing something?

 

[TheNotSoGreatGatsby]

ES spread being 0.25 and a stock's spread being .01 has no difference. Both are 1 tick.

Let's compare /ES to SPY.

/ES has a 0.25 spread.
SPY has a 0.01 spread.

Both are 1 tick, not really a difference.

A 1 point move in ES is generally a 0.10 move in SPY.

You can buy a ES contract for generally around $500 intraday margin, and make $50 on a 1 point move.

To make $50 on a 0.10 move, you would need 500 shares, or roughly $100K at $200. So yes, /ES gives you a huge advantage in leverage.

 

[wartrace]

Your statement "Current movement for today = 0.50" is flawed. There are four ticks in one ES point. If you just look at today's move from high of day to low of day (so far on 11/05/15 @ 1:49pm est) it is 19 points or 76 ticks.

 

[wrbtrader]

...So why are futures considered better for day trading? Is it simply because of the leverage, or am I missing something?

Bloomberg had a nice write up a few years back about such.

Every day trader has a different reason. Some do futures for tax reasons, some do both stocks and futures, some do it because of leverage, some do it because they have a small account and can bypass the pattern day trading rule of stocks, some do it because they have a better understanding of futures than they do stocks, some do it because their trade method had better backtest results on futures than on stocks and some do it because there's a market they want to trade in futures that's not available in stocks.

There's many more reasons.

Its like asking why that trader uses that particular computer for trading and that other trader is using a different computer for trading. As traders...we each have different personalities, in different financial situations, have different experience levels...

Select what fits you best. Thus, stocks is better for some while futures is better for others. That's the reality.

For example, I prefer to trade futures. Yet, once in awhile I'll trade forex because something is happening in a particular forex trading instrument that I want to try to profit from that I can't find in futures.

As the say, whatever floats your boat.

Isn't this also like asking someone why they trade BAC instead of trading AMZN or any other stock. Simply, ask 100 traders and you're going to get a ton of different answers for any particular stock in the stock market.