Trading SPY vs S&P Futures

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impulse

I have traded SPY for many years (intraday trading only), and people always say I should trade E-Mini S&P minis instead. I am aware of the various leverage and tax differences, and of course that futures trade for more hours. But, my question only has to do with the trading fees. Interactive Brokers charges me around $2 to trade $100,000 of E-Mini S&P or SPY, so that is the same either way. But the bid/ask spread with the E-Mini S&P (like ESH7) is higher percentage-wise, in that it is .25 cents on a $2000 price while the bid/ask spread for SPY is .01 cent for a $200 price. So the E-Mini S&P spread is 2.5 times as much as SPY on a relative basis.

My question is if the leverage of the E-Mini S&P makes up for this? For example, if SPY goes up 1%, does the S&P mini also go up roughly 1%?
 
the tick on the SPY is smaller, but it is constantly moving up and down by little bits when the ES is sitting at single price level. Depending on your trading style this may be a good or not.
 
I am still confused about the bid/ask spread size when comparing them. If I want to buy $100,000 of SPY, that is roughly 500 shares, so I lose $5 (500 shares x 1 cent) due to the bid/ask spread. If I instead take that same $100,000 and buy roughly 50 shares of ES, I lose $12.50 (50 shares x 25 cents) due to the bid/ask.

Now assume SPY goes up 10 cents (.05%) and I sell. I will have made a $45 profit (10 cents profit minus 1 cent lost to the spread - assume there are no commissions for the sake of discussion). How much would I have made from those 50 shares of ES instead?
 
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Why is this so important when you can also buy on the bid and sell on the offer? I think the tax benefit to ES and the inherent leverage for DT with small accounts, would be a better metric to look at. If I only traded the S&P 500, I would focus on the futures. If I wanted to buy or sell SPY as a long term investment or hedge, I would use SPY.
 
I have some automated strategies for SPY that make around $5 per trade, so they don't make money after trading fees. I am just trying to figure out if trading ES works out to be more or less in trading fees. Yes, I can use a limit order with either SPY or ES, but that messes up my strategy somewhat.
 
I am trading around $100,000 per trade, and am generally in the trade for 1-2 minutes. And yes, I know I can use limit orders to get a rebate from the exchange.
 
I am using machine learning (quant) strategies that enter almost every minute, and in backtesting (on unseen data) they consistently make around $2-$5 per trade. But that is not enough to cover fees. I can use a limit order to save the 1 cent spread for SPY, but my backtesting shows that may lose money because it enters more "loser" trades because once they are going down they keep going down. But, backtesting limit orders is hard so I could be wrong about that.
 
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Biggest difference between the is not in commission savings or spread price difference as they are fairly similar, but rather the amount of money required to trade the same position size.

To trade 500 shares of SPY ($113,000 notional value) you need to have 113,000 Dollars or half of that if you use standard 2-1 margin leverage overnight ( most brokers can provide that)

To trade 1 ES contract worth about 113k, you need a little over $5000 in your account.

Thus for a typical retail trader he can trade a much larger position with the ES. Hypothetically about 10-20X larger.

(i am discounting pro shop leverage in this comparison)
 
I trade both the SPY & the emini ES. The cost to trade is slightly lower on the SPY (500 shares) by a few dollars when you factor in the slippage on the ES. With all the arbitraging they track close enough most of the time. In some events like tipple witching I have seen SPY track the $SPX better than the ES. I see a number of advantages of using both products.
 
impulse said:
...My question is if the leverage of the E-Mini S&P makes up for this? For example, if SPY goes up 1%, does the S&P mini also go up roughly 1%?
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Pull up the charts and put both charts of each next to each other. You can then compare the price movement any way you want.
 
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