What are some reasons to trade ETFs instead of futures?

[Haroki]

Quote from xxxskier:

the main advantage of futures over ETFs (at least for daytrading) is the 60/40 tax treatment on futures profits.

Yup.

But depending on how agressive one is, the 3x ETF's can give more bang for the buck.

Compare ES vs FAS today.

ES was at 825 when the market decided to go up, and topped at 847. 22 pts = $1100/ contract. So let's say you're moderately agressive and trade 1 contract/$3000.

FAS was at 6.00 at the same time, and topped at 7.81, or 30%. So let's say that you're also moderately agressive in this and use 2x your account balance.

So per $3000 in your account you made $1100 trading the ES.

And using $6000 [$3000 x 2 (margin)] x 30% = $1800 trading FAS.

 

[xxxskier]

Quote from Haroki:

Yup.

But depending on how agressive one is, the 3x ETF's can give more bang for the buck.

Compare ES vs FAS today.

ES was at 825 when the market decided to go up, and topped at 847. 22 pts = $1100/ contract. So let's say you're moderately agressive and trade 1 contract/$3000.

FAS was at 6.00 at the same time, and topped at 7.81, or 30%. So let's say that you're also moderately agressive in this and use 2x your account balance.

So per $3000 in your account you made $1100 trading the ES.

And using $6000 [$3000 x 2 (margin)] x 30% = $1800 trading FAS.

interesting analysis. thanks.

but for me on the ES, i usually go all in and then scale out, and yesterday i scaled out and added to pullbacks. in hindsight my adding didn't really boost my profits much cause i didn't pick the best places to add....but some days my trade mgmnt really boosts my profits. i had a great day tues. only because i had excellent trade location early on and rode the trend all day.

i've been daytrading ES about 4 years, so i'm used to it and actually prefer it over anything else as a daytrading vehicle. but i do appreciate your 3x ETF analysis. good stuff.....i hope it works for you.

 

[Haroki]

Quote from xxxskier:

interesting analysis. thanks.

but for me on the ES, i usually go all in and then scale out, and yesterday i scaled out and added to pullbacks. in hindsight my adding didn't really boost my profits much cause i didn't pick the best places to add....but some days my trade mgmnt really boosts my profits. i had a great day tues. only because i had excellent trade location early on and rode the trend all day.

i've been daytrading ES about 4 years, so i'm used to it and actually prefer it over anything else as a daytrading vehicle. but i do appreciate your 3x ETF analysis. good stuff.....i hope it works for you.

Yeah, Id like to do ES for the tax bennies too. But for whatever reason, I am simply unable to read price moves in the ES. So I quit trying and moved on.

FAS and FAZ, for whatever reason, seem like they're just laid out in front of me like a virgin on her wedding night.

 

[indexer]

ES is too choppy due to the unnecessary pit to electronic arbitraging (i.e. every time the ES starts to rally, it is pulled down by pit arbitrage). Instead of a clean up move it is a stop and go move, kind of like a new driver trying to use a stick shift for the first time.

A fine index is ruined so that pit traders can make unnecessary arbitrage profits. The CME allowed this for political reasons when it was a non-public organization. Now that it has issued stock, there is no reason to allow it and I suspect it costs shareholders money as people avoid trading the ES.

Quote from Haroki:

Yeah, Id like to do ES for the tax bennies too. But for whatever reason, I am simply unable to read price moves in the ES. So I quit trying and moved on.

FAS and FAZ, for whatever reason, seem like they're just laid out in front of me like a virgin on her wedding night.

 

[Haroki]

Quote from indexer:

ES is too choppy due to the unnecessary pit to electronic arbitraging (i.e. every time the ES starts to rally, it is pulled down by pit arbitrage). Instead of a clean up move it is a stop and go move, kind of like a new driver trying to use a stick shift for the first time.

A fine index is ruined so that pit traders can make unnecessary arbitrage profits. The CME allowed this for political reasons when it was a non-public organization. Now that it has issued stock, there is no reason to allow it and I suspect it costs shareholders money as people avoid trading the ES.

Interesting.

So are you of the opinion that the "pit games" may end anytime soon?

 

[indexer]

Probably not until shareholders complain that it is driving away business. All they need to do is to reduce the ES tick to .10, eliminating the .25 to .10 arbitrage. They can leave the pit open after that as it won't matter.

Quote from Haroki:

Interesting.

So are you of the opinion that the "pit games" may end anytime soon?

 

[xxxskier]

Quote from indexer:

ES is too choppy due to the unnecessary pit to electronic arbitraging (i.e. every time the ES starts to rally, it is pulled down by pit arbitrage). Instead of a clean up move it is a stop and go move, kind of like a new driver trying to use a stick shift for the first time.

A fine index is ruined so that pit traders can make unnecessary arbitrage profits. The CME allowed this for political reasons when it was a non-public organization. Now that it has issued stock, there is no reason to allow it and I suspect it costs shareholders money as people avoid trading the ES.

can't disagree with that...but if you get a good squawk and listen to the pit action (Ben L. is the best at it), and watch certain internals (not gonna say more cause it's my edge i think) combined with an ES T&S strip (transactions only, ignore the bid/ask false ad sizes) you can get a decent read on what the big lot players are trying to do. when i spot 'em, i jump on for a ride and get off when it looks like they get off. doesn't work all the time, but at least i'm green most days and just about every week.

 

[geoMEAN]

Quote from stevegee58:

If you're trading with a small account, mini sized contracts may not be small enough to control risk. The smallest size you can go is 1 contract. But you can buy an arbitrary number of ETF shares to give better scalability. Of course, you run into the problem of commissions being a more significant part of your expenses when you buy < 100 shares.

For instance, if your max risk is say $100 you can place your stop where it makes technical sense and size the position accordingly. A well placed technical stop on ES might be $500 away for 1 contract which would exceed your risk tolerance.

I agree that this is the primary reason for smaller traders to mess around with ETFs before trading an emini, which in margin terms, is not really that 'mini' anymore, especially if trading overnight. At IB you need like 8 grand to trade 1 contract of certain eminis overnight.

 

[short&naked]

1. With the 3x ETFs you can leverage without ever getting a margin call.

2. You can scale up leverage without increasing commissions.

 

[toc]

more smart money in futures and hence more strategies that will take out your stops and then go in the direction you wanted prices to go, i.e. beware of sharks in the futures pits.