I'm curious who trades SPY? Do professionals trade it? Smart money? I figure any really good trader would trade ES, so I'm wondering who that leaves to trade SPY. I ask the question because I've seen analysts and newsletter writers analyse spy. I wonder why they don't analyze the S&P index instead. I know SPY tracks the S&P for price but for volume I'm not sure..
Target demo for newsletters and such is Joe blow. Joe blow probably doesn't have a futures account, and doesn't understand the concept of futures.
Yes to all. SPY is very liquid, and a firm can buy/sell a couple million dollars worth of inventory pretty quick and without a major market impact. Just watch the T&S sometime. All types of trading going on in there.
But why would a firm tie up a couple million dollars in SPY when they could just tie up 40k in ES? This is the part that I don't get.
Perhaps they are tying up money for a year or two, and don't want to roll front-month contracts or deal with illiquidity in the back months. Oh also, SPY trades at NAV or prety darn close to it. ES will trade at or below fair value, meaning you may have to absorb slippage on the way in or out. Finally, SPY pays out an actual cash dividend, whereas ES has the dividend implied in the price. If you were to pay above fair value for a contract though, you may forego the entire dividend. Hope that helps....
Very good point, one which I had not thought of. But they could still analyze the S&P index. Wouldn't that be more accurate?
the people you are referring to are technical analysts of stocks, so their expertise is looking at volume, RSI, support, resistance, chart patterns. SPY represents the index and is kept in line because of arbs with futures and the underlying index. It is a more measurable instrument for them and their expertise. The SPY are important for arbitrageurs, futures and options hedgers as well.
To give a non-specific example (wish I had a specific one).. I've seen someone analyse SPY volume and say something like "this high was on higher volume which means price is likely to move up". And I looked at SPX and the volume was lower, which would give a different interpretation. That's why I'm asking about this.