SPY vs. E-Mini S&P 500 Index (ES) Futures

S

stock_punter

Hi All,

I am wondering why one would choose to trade the SPY securities as opposed to the futures E-Mini S&P 500 Index (ES) counterpart. Perhaps you can help.

Here's what I see are the differences between trading the SPY vs. the S&P futures:

1. Clearly there's a difference in terms of leverage, with futures providing much more leverage than the cash equities.

2. Futures run the risk of limit up and down moves, which could be painful if you're trying to get out.

3. Commissions may be lower in futures if you're trading in size.

4. The futures are more liquid than the SPY.

5. The smallest dollar value of one unit size in SPY (1 share) is much smaller than the notional value of a futures contract (1 contract).

6. The bid-ask spread in SPY is bigger than that of the futures (is this true?).

7. The futures prices usually lead the SPY.

8. There's no insurance protecting your futures account, as opposed to your securities account, in the event your broker goes belly up.

Any other considerations?

Thanks.

-- Punter
 
stock_punter,

1 ES = 500 SPY approx.

9. With SPY you're more likely to get partial fills (less than 500 shares) than with ES

ES could be traded almost 24/7

6. The bid-ask spread in SPY is bigger than that of the futures (is this true?).

Yes, ES spread is usually only 0.25 points = $12.5 which is pretty tight for a $50k investment.

Overall, the lower cost, higher leverage and tighter spreads makes ES a better daytrading vehicle than SPY for the knowledgable disciplined trader.

Fohat
 
Thanks Fohat for your reply.

I had not considered after hours trading. Good point there.

$12.50 spread for 1 futures contract / 500 shares of SPY = 2.5 cents. After taking a quick peek at the SPY's time of sales info, the avg spread there is certainly wider than 2.5 cents -- more like 5 to 10 cents. Futures definitely have a tighter spread.

Clearly if you are trading less than 500 shares of SPY, you have no choice but to trade the SPYs.

What about stop orders on Interative Broker's trading systems? Are they handled differently for SPY and the e-Mini ES futures? Does the speed of stop order fills vary?

Thanks.

-- Punter
 
I agree with the ES vs SPY comments above.

One more thing to consider: 500 SPY's (as one ES equiv) gives you the ability to scale in and out of positions. For certain strategies this is important.
 
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