One does not lead the other, they trade independently of each other the reason that they trade with each other is arbitrage. An institution can come into the pit and start buying 1000's of contracts raising the price of the futures, this also drives the price of the ES higher. The S&P500 follows because stock baskets are being bought to lock in the momentary discrepancy in price or to hedge the liquidity providers in the pit. The ES follows the pit contract for the same reasons, if you can buy one at a discount to the other it is risk free money. The original function of a futures market was to hedge a commodity or cash position. Follow is the wrong word to use. They have a tight relationship based on fair value, any discrepancy is risk free money, less execution risk.
someone bought 40,000 puts today on one strike, didn't even move the bid, spy and its options are incredibly liquid and deep.
Of course. Reasons are: 1) liquidity 2) no rolling issues and can therefore be held longer term 3) dividend
Yes...also, there is time decay with ES and SP. Pull up a continuous chart of SP back to the late 80's and you'll see what I mean. I suppose this discussion needs to bring up fair value. Since the cost of owning all 500 stocks is much higher than owning futures, interest rates must be factored in (minus how much you would get paid in dividends). This video shows it pretty well: http://www.milliondollartarget.com/blog/sp-500-revisiting-1987-low/ SP is the tail that wags the dog. Look up the open interest on cftc.gov Being a commercial trader of SP must be nice. You get to make money from time decay, and most of the folks you sell to are wrong-way traders. D
not to refute what anyone has said above....but for me there is one primary reason why i daytrade ES, and thsat is the 60/40 tax treatment. saves me about 10% in taxes as a daytrader.
Professional traders who are LLC members income is taxed as ordinary income with a K-1. It doesn't really matter what you trade, it's all the same.
Yeah I use a few accounts, one of them I get a k-1 from an LLC so I"m treated as a sub LLC - pretty cool. And as for the SPY, i'm a pro, most of my day trading is with the spy. the moves are perfect for me, nice 15-30 cent gains i can take a huge controlled position and the technicals are pretty orgasmic. it's like riding a bike. Also, regarding VOLUME on the spy. you can't watch volume as an indicator on spy b/c it doesn't affect price directly. I can't say mostly pros trade spy b/c when you look at volume I can see a lot of stupid buys when looking at 1min charts. huge volume spikes at areas that don't make sense technically. so i can't really tell if the majority of spy trades are done by pros or by people who are just learning how to trade. as for leverage i get 50-100X on one account and 20:1 on the other intra day. and i rather just stick with equities and not fool around with the emini/future etc. rather buy/sell based on on cents than S&P points anyways.
I prefer the SPY BECAUSE ..............forgetting about the leverage of futures (i do not like more than 4:1 leverage anyway),i have found that the reduced slippage I get trading the SPY adds up tremendously over the course of trading.... with the futures it seems very hard not to have to give up a 0.25 getting in or out of a trade....