Dan, I'll agree with the first portion of your post. Commissions are a vital component of R/R. However Brandon made the following statement. "Unfortunately for those who trade the NQ, this reduction in average range has not co-incided with a reduction of stop sizes (risk) on the average trade. Stops on most trades remains between 6 and 12 points, some of this because of the Nasdaq's tendency to "overshoot" support and resistance levels. This means that on an individual trade one must risk between 15% and 30% of the average daily range on a single daytrade. Given that a very good trader will look for profits of 20 to 30% of the daily range on a DAILY basis the risk of trading the NQ is steadily reaching a point of not being justified by the potential gains." I happen to disagree. Maybe it's because I come from a different trading background than many here(T-Bond futures), but there is a lot of money to be made trading tight ranges with size. However once again I agree, juice is a killer, and traders who are not exchange members are best served by "true volatility" as opposed to pct. vol., but that has NOTHING TO DO with the placement of stops. Brandon's point was based on trading methodology and not costs and I don't buy into the argument that this envirement is any different than prior times or other markets. As far as the merits of the Dow, I've traded it as both a local, and an off the floor trader. As a former CBOT member who has many friends in the pit, I wish both the ACE and floor versions well. However your comparison to the success of futures on various European indices to that of the Dow are ludicrous in logic. The S&P 500 is a benchmark in the same vain as are the Dax, Cac, and FTSE. Now with the advent of a single currency the Stox is clearly the index of choice, for it is the vehicle from which Euro managers are judged. The better suited analogy is in Japan where the Topix, was never able to out trade the Nikkei. At the end of the day gambler-speculators aren't the ones responsible for the growth of a futures contract. Institutional users are. Yes the Dow is a nice contract with a special niche in a fragmented global arena, but no, it will never be a behemoth. And no, the ease of index arb is not what I'm refering to by institutional participation. I'm speaking of funds that use the index for real hedging. That is afterall why these contracts exist.
except for e mini, which exists soley for the speculating pleasure of the small pc trader. You know anybody using e minis to hedge?
Oct 25, 2002 (ODJ Select via COMTEX) -- E-Mini S&P 500 Stock Index - Chicago Mercantile Exchange Reportable Positions As Of 10/22/02 | -------------------------------------------------------------| Nonreportable Non-Commercial | Commercial | Total | Positions --------------------------|----------------|-----------------|---------------- Long | Short |Spreading| Long | Short | Long | Short | Long | Short ------------------------------------------------------------------------------ ($50 X S&P 500 Index) Open Interest: 299,608 Commitments 86,773 66,478 8,364 172,209 192,287 267,346 267,128 32,261 32,479 Changes From 10/15/02 (Change In Open Interest: -18,041) 8,943 1,394 902 28,626 -25,174 38,472 -22,878 -56,512 4,837 Percent Of Open Interest For Each Category Of Traders 29.0 22.2 2.8 57.5 64.2 89.2 89.2 10.8 10.8 Number Of Traders In Each Category (Total Traders: 156) 51 50 15 41 31 100 88 Looks like a lot of commercials to me.
Dang! I guess I really am playing with the big boys now. I bet they all have a story like mine about their last fill in that S&P pit.
Someone in another forum mentioned a study that found that the Emini S&P was a better deal for hedge funds under $30 million(?) than the big contract. If we can get the tick size in the Emini down to .10 from .25, I think you will see larger hedge funds participate. .
What the heck is your obsession with a 10 cent tick size? I mean it's an interesting academic discussion, but you are like some zealot. What gives. I know it's going to hurt me, but how is it going to help you? And why would a hedge fund suddenly start using e mini simply because the spread was reduced by .15? Are you one of these guys who buys and then changes his mind and sells a lot? So you are mad because everytime you do that you have to pay .25? You know, if you get on the right side of that spread, that means everytime you MAKE .25.
Pabst, I happen to disagree. Maybe it's because I come from a different trading background than many here(T-Bond futures), but there is a lot of money to be made trading tight ranges with size. not disagreeing, but one other thing i forgot to mention was that with such small ranges, the "noise" often obscures the "signal", making them, imo, tougher to trade. but of course it can be done.. However your comparison to the success of futures on various European indices to that of the Dow are ludicrous in logic. The S&P 500 is a benchmark in the same vain as are the Dax, Cac, and FTSE. Now with the advent of a single currency the Stox is clearly the index of choice, for it is the vehicle from which Euro managers are judged. sorry about my logic there pabst! but i think my comment was tempered by saying i don't shit about that stuff.. still, categorically stating dow futures will NEVER be a great contract is still a bold prediction... oh, and the performance of america's (the world's) bluest of blue chips isn't a benchmark? better suited analogy is in Japan where the Topix, was never able to out trade the Nikkei. well, that's not really a great analogy either... since nikkei volume is pretty pitiful itself (<100k).. end of the day gambler-speculators aren't the ones responsible for the growth of a futures contract. Institutional users are. And no, the ease of index arb is not what I'm refering to by institutional participation. I'm speaking of funds that use the index for real hedging. That is afterall why these contracts exist. again, i know very little about this stuff, but i'm curious, so i'll ask.. if insitutions (i'm thinking mutual funds/stock owning institutions)are "hedging" to protect their portfolios against price drops, shouldn't they always be short the futures? if they go long, aren't they essentially speculating (ie not hedging)? and wouldn't the effect of all these institutions selling futures cause the prices of the underlying to drop anyway? producing a kind of vicious circle thingy? just trying to get the logic of it all...
I like trading nq, even though, as price has decreased so has range. The same holds true with stocks. Before decimals when we traded fractions, stock prices were higher and range of course was higher simply because the prices were higher. However, I noticed a pretty severe decrease in stock's daily ranges from the decimalization. NQ still out ranges most stocks, if you play several contracts. I like trading nq better than trading stocks. As for liquidity it's similar to playing CSCO. I always have someone to take my entries and exits, pretty close by. As best I can tell the dow futures don't have that liquidity yet. So why would I want to go there at this time. As for 6-12 point stops. I don't play stops like that. I am a hands on daytrader and if I have to use wide stops like that, then to me, that means my trade entry sux. Just my opinion for my game. So Brandon, maybe what you are suggesting may fit for some, but I think that I will stay with nq for now. plum-happy-with-nasdaq100-eminies
Reducing the tick size on the Emini S&P to .10 from .25 would be like reducing the commission per contract from $12.50 to $5. If you trade 20 contracts a day that would be a cost savings of $150 a day or $39,000 a year. So, this is more than just âan interesting academic discussionâ. From your statement, you must make a living arbitraging the Emini. When tick size goes to .10 to match the big contract there will still be opportunities to play market maker with a .10 spread. Nasdaq market makers make a living with a penny spread in many cases. .
For whatever reason the Japenese have never embraced futures as have the West. Even debt contracts i.e. Euroyen and the JGB, trade lackluster volume despite the their considerable cash markets. Hedging is a two way street. The benefits of institutional short selling are obvious. Commercials sell futures to protect their long cash invetory. A much less discussed need is the long hedge. If a fund is long cash and needs to buy stocks on the quick, it is easier to put that buying power to use in the futures than cash. For instance I'm a manager who is under invested, and the market begins to move higher. Rather than chase some thin stocks on the upticks and put the price up on myself, I will just buy 1000 contracts in the pit and give up the edge over fair value to an arb who may have greater expertise in purchasing the underlying in a fast market. At a quieter time I can then roll out of the futures position and purchase the specific issues that I want to hold.