I ask you why do you try to meddle with one e-mini, when there are 10,000 different stocks to trade that have thin spread (as low as .001 of a cent)? If you like your directional trading so much, choose out of those 10,000 stocks. Leave e-mini alone.
But if you pick the wrong direction who will provide the liquidity to help you get out of a position at a good price? How attractive would a market be if the only people you could sell to were other directional traders because market making was deemed a bad and parasitical activity?
Ahh theres the rub. To make smaller tick sizes viable, you have to have greater margin available. I am not arguing for tinier contracts, just smaller tick sizes. W/ more margin, liquidity providers can still make a profit. I'm sorry if what I wrote came across that way. I was trying to make a snide jab at those who do think of them as parasites. But I do think that the meta-trend is towards smaller tick sizes, ergo more continuous price series. This makes me happy, and others not so happy. But to not be aware of that trend (or at least the possibility thereof) and not start thinking about alternative strategies-- its like standing in front of a freight train. You can see the floor guys going through that right now.. If you upped the margin comparably, I'm not sure there would be very much difference at all. Wrt 'noble and intelligent'-- The only value judgement I'm making is that "more efficient is mo' bettah". I should not have responded to the original posters tone in the way that I did-- it just seemed like he felt there was some malevolent ethereal consciousness (perhaps embodied in the NASD) that kept limiting the effectiveness of his trading methods, instead of thinking about the larger issues. I really don't think badly of market makers-- I just think that the death of open outcry and subsequent leveling of the playing field is making them obsolete. Thanks for your comments-- I'll have to chew on the apples and oranges bit for awhile. Regards, laz
Puffy, you are a hoot! Regarding your above quote...... How attractive would a market be if the only people you could sell to were other directional traders because market making was deemed a bad and parasitical activity? Right now in the S&P pit with a .10 tick increment the floor traders/liquidity providers make an average annual gross profit in excess of $500,000. You seem to be suggesting that if the Emini S&P were to trade in the same .10 increment, that no one would want to be a market maker/liquidity provider for the emini. This is just more nonsense.
The tick in the big contract is worth $25. With the emini it is now $12.50. You are proposing that the tick be changed to $5. With CME non-member clearing house fees something like $2.80 plus broker commissions, only member traders could trade that spread profitably. You are proposing a 'CME floor trader full employment act.' You are really for the big guy all the while pretending to be for the little trader. Secondly you are also arguing for less liquid markets with your lower tick size. Tell me why less liquidity would be a good idea.
The S&P Emini is 1/5 the size of the pit contract so comparing dollar value of a tick move the way you are is disingenuous. You are really reaching deep trying to come up with convoluted logic and FUD (fear, uncertainty and doubt) to preserve an archaic system. The non-members fees of the Emini would be the same if the tick increment were .10 or .25 Saying that somehow I am for the big guys and against the little guy (I am a little guy by the way) because I want to reduce my trading costs and narrow the spread is just more FUD and shows how desperate you guys are. Reducing the tick increment in the Emini market will increase it's liquidity as more medium sized hedge funds shift their S&P business to the Emini market due to reduced costs. Also, there would be more Emini scalpers, as their profitability would go up due to lower costs per transaction. Lets face it, the big scare for CME floor traders is that if the tick increment were the same for the pit contract as the Emini, it would shift business to the emini which would be a good thing for all Emini traders.
Agree; a lot of the volume is created arbing the two contracts against each other. That proposal will hurt the game; not help it ...
There were more complaints from some of the major funds as they could no longer get size down easily in stocks when we went to penny spreads in stocks. The size soon was constantly showing 1x1 on the inside with everybody penning each other. It made the Manning rule obsolete. Scalping decreases with tighter spreads not increases. Less scalpers means less liquidity.