anyone ever experience slippage in the ES?

Discussion in 'Index Futures' started by triggertrader, Apr 29, 2007.

  1. I agree that these are important considerations. The question I have is just how much the relation of ES to SP should bear on tick size.

    What I've always thought happened was that the exchange wanted to stimulate trading in the S&P futures. The problem wasn't tick size but margin requirements. With a contract 1/5 the size it was possible to reduce margin to 1/5, which was the real stimulus to trader participation. But still, "Lets make it trade like a contract that is 1/2 the size." So we set the tick size at $12.50 versus the big contract's $25.00, and now we have the best of all possible worlds: a future that requires 1/5 the margin but acts like it's only 1/2 the size.

    To do this, though, tick size for the ES had to be set at .25 as opposed to the .10 of the SP. Complaint: SP traders have arbitrage possibilities you can't reach from the ES. What's the answer? One thing is we could reduce the ES tick size to .10 so minimum fluctuation is 5.00. Then we would have a contract that is 1/5 the size and trades like a contract 1/5 the size of the SP.

    So what? Well, we already have apex82's observation, "ES is the worst stock index future for fills if you use limits...hands down." This is exactly what would get worse if the tick size were decreased. The problem is that the cost of bettering the bid/offer is just $5.00. There is little incentive to place a limit order and risk not getting a fill when the cost of certainty is just $5.00. It's already bad when the cost is $12.50; it would be a lot worse at $5.00. There's not much reason to enter a queue and hope for a fill when you can just wait for your price and enter immediately at no worse than $5.00 penalty.

    A similiar phenomenon occured when stocks were taken down to decimal increments in 2001. Displayed order sizes were greatly reduced.

    So it's a trade off. Personally, I think the relation with the SP is of secondary importance compared with the loss of price competition that would occur. But it all sort of depends on how you want to use the market.
     
    #31     May 1, 2007
  2. erToo

    erToo

    I don't see how setting the tick at $12.50 makes the ES trade like a contract 1/2 the size or how this is an advantage or even relevant. Margin is still the same, you are just paying more in fat tick slippage.


    If stop limit orders fill all the available bids for the next few levels, then the guy who waits and places the market order may not get filled for several ticks higher. So the cost of certainty is not $5.00 for a market order (in your example) but possibly much higher.
     
    #32     May 1, 2007
  3. erToo

    erToo

    CME Logic

    Here is a comparison of three CME index products. I wonder, do they use a Weejee board to come up with these tick sizes or are they solely driven by the political strength of each pit?

    NDX - weak pit - increments laid out logically

    Pit $100 per point. tick increment: .25 = $25
    NQ $20 per point. tick increment: .25 = $5


    Russell 2000 - semi-weak pit


    Pit $500 per point. tick increment: .05 = $25
    ER2 $100 per point . tick increment: .10 = $10


    S&P 500 - strong pit politics

    Pit $250 per point. tick increment: .10 = $25
    ES $50 per point . tick increment: .25 = $12.50
     
    #33     May 1, 2007
  4. Ok, let me say that setting the tick at $12.50 makes the ES trade like a contract on the S&P index with a tick of $12.50 rather than a contract on the S&P with a tick of $25.00. If the only difference in the way the two trade is tick slippage, then there is no reason at all not to reduce tick size as much as possible. Why not set the tick at $1.00 or even $0.01?

    The advantage, or what I thought was the advantage, was that margin was less. The current overnight margin on SP is $17,500 and on ES it's $3,500. I don't understand why you say the margin is the same.

    Other than the margin, it's not particularly relevant nor advantageous in my view. I only was discussing it in those terms because you were comparing the tick size on the two. I know from theory and experience that a smaller tick size changes the behavior of participants in a market and consequently the way the market trades. That is my single point here.

    It is true that a surge of orders from any source occurring at the same time as my market order is likely to put me in the market higher or lower than I meant to be. However, my point (again)was really that when the cost of bettering the bid/ask is small, the dynamics of a market change. With a tick of $25.00 one thinks a bit before paying the spread. With a tick of $5.00 one jumps in pretty quick (one doesn't have to use a market order).

    By the way, the eCBOT mini-Dow contract trades with a $5.00 spread, and one can get a feel for how the ES would behave with a smaller tick. YMM7 has an open interest of about 118,000 contracts and is quite liquid enough for comparison. It's very interesting.
     
    #34     May 2, 2007
  5. erToo

    erToo

    I meant margin was the same regardless of tick size, not that margin on the big contact was the same as the ES.

    The mini-dow doesn't have native stops last I checked, so it would trade different from the CME indexes IMHO and not be a good comparison.

    To cut to the chase - I think the best index tick structure is the ER2 (electronic Russell 2000). .10 tick increments.
    ES could easily handle a .10 tick. NQ is probably good at .25 tick for now. The pit tick should match the electronic tick for all indexes - this would reduce choppiness as pit arbitrageurs would not have a privileged financial incentive to fad every tiny breakout.

    Amen.

     
    #35     May 2, 2007
  6. Sorry, I misunderstood about the margin. You're quite right about that.

    I believe that eCbot now supports native stops but does not support native stop-limit orders. Globex supports native stop-limits but does not support native stops.
     
    #36     May 2, 2007
  7. thats a market order. you have no idea where you're going to get filled and it is always higher when buying and lower when selling which is why i never place market orders. i'm talking about stop orders. that is the issue here. how much slippage on a stop order will determine if you can trade right at the big reports.
     
    #37     May 2, 2007
  8. ==============
    Hardly ever, with limit orders;
    but on FED days, yes:cool:
     
    #38     May 3, 2007
  9. how many ticks slippage on your stop?
     
    #39     May 7, 2007