Hello, wondering... is there any advantage to trading futures say the es compared to trading an equally liquid instrument like the spy or other etf during the day? the reason I ask is if you are a price action trader wouldn't the same principles apply as long as there is enough liquidity. Also for a beginner the size of the wager is lower. Thanks
If you're in the US: 1256 accounting and tax rules are a big one. More effective use of margin, no shorting restrictions, reasonably fair order book; just a much more direct instrument with less bullshit.
ES is a future and is a 1256 contract. https://greentradertax.com/trader-tax-center/tax-treatment/section-1256-contracts/ SPY is not. ES future provides good leverage with smaller account sizes than equity accounts. To get similar treatment with SPY, you need a portoflio margin account which has a higher requirement. ES trades almost 24 hours a day, SPY has pre and post market trading but not nearly the same hours. If I were a beginner trading S&P 500, I would stick to futures.
The pros of the futures has been mentioned - let me throw in the pros of the SPY: Intra-day Pro's * Sizing - can choose any position size. * Lower trading costs - approx 40% less * Lower volatility, making it easier to stay with a trade. Longer time frame Pro's (swing/trend/positional) * Pays dividends (for swing/trend/position traders) * No carry costs - if you're holding longer term that is. * Trading around a core position using SPY gives you the lower tax rate as futures. Starting off trading futures without first having adequate experience trading non-leveraged instruments like the SPY is like expecting to learn how to surf at 30' Pipeline. IMHO, your much better off developing your trading skills learning how to first trade well without leverage - This way your learning to surf in much smaller, slower, and forgiving waves.
Thanks to all for the replies, Is there really lower volatility on SPY vs. es I compared the charts and as I remember they followed each other pretty closely.
There is very little difference between SPY and ES volatility, because they track the same index - the S&P 500. The difference is the embedded leverage in the ES futures. Holding only 1 ES contract is the equivalent of buying $116,000 worth of SPY. With some futures brokers offering $500 intraday margins for ES, that is a ridiculous amount of leverage. Even with a $10,000 futures account, that is 10:1 leverage. With SPY, if you only want to buy one share for ~$233, then you can do that.
Totally agree. You can trade ES without leverage by having the $116k in your account, so when you think in terms of making $200, it is more reasonable expectation. As your skills increase, add to the risk of increasing leverage. Not much difference in Forex, you can make a pip value be almost anything. But apples are apples and oranges are oranges, ie. they trade different and yet they are the same, but each market has it's personality.
Actually most of this is simply incorrect, actually all of it except the sizing. You are misinformed than. All of the pros I mentioned are facts - try doing some research instead of just assuming. Do you think the bid-ask spread cost in the ES and SPY is the same? Do you think when you buy a futures contract you can hold it as long as you like? Do you ever compare the intra-day volatility spikes in terms of $ value - obviously not. Do you think futures contracts pays dividends?