Electronic markets evolved to replace "open pit outcry markets" like in the old days. The primary benefit was reducing the overall transaction cost of trading.. primarily slippage.
IMV, one should not be trying to scalp the ES/SPY... too noisy for small potential gains. Suggest playing for "swing" type moves.
Slippage is still a concern. I define slippage as the price differential between the time when I "decide to make a play" and when it gets executed... even with today's market in the SPY or other, you still have to "construct" an order on your computer and then submit it to the market. How much slippage is in all of that from the amount of time it takes to do it and then get filled? With the ES futures, the spread is .25 and the fill is virtually instantaneous in most cases. In spite of higher commission costs and even higher spread... the electronic markets have become preferred because the "time factor/cost of slippage" has been virtually elimated for most trades. (I recall way back when... I wanted to place a trade in the SP "big contract"... I'd call the broker and give the info. The broker would then call his rep manning the phone outside the pit... who would then hand-signal his rep in the pit, who would then negotiate/fill the trade. All of that takes time... slippage. The electronic markets elimated all that in exchange for instant fills and a .25 spread.) If the market was slopping around, the slippage might not amount to much... but if it was moving and players were chasing, the slippage cost could be quite significant just from the time it took to get a trade filled.
OP pay attention to what Bugsy is saying. If you care too much about that slippage you are not ready for the first league.
I think this is a good question and you are thinking about this right and there's a lot more loss in commissions, storage and insurance if you trade commodities other than index futures, and huge will be your cost of borrowing. If we breakdown the cost to breakeven for ES you have the 1) bid/ask spread going against you, 2) interest as you are borrowing to trade that massive contract that has only 5% down, and 3) commissions. You will need 4+ ticks "profit" on average just to break even in time. You have 1 tick for each side as you are buying ask and selling bid (2 ticks total), you have commissions on both sides which is 3/4 of a tick, then you have interest which is probably 100 ticks per month if you held the contract all month (probably around 5 ticks per day, although I'm giving a very high level estimate). So if you buy a contract and hold it a quarter of a day you have almost 4 ticks to get to breakeven (2 for bid/ask spread, near 1 for commissions, 1 for interest). That's $50! Now, if you are targeting $500-$800 in gains from a trade, and say $500-$800 in losses from a trade, you need to be right 54% to breakeven. That's to make $0. You are taking on lots and lots of risk, and expecting $0. Trading futures for profit is extremely difficult. I'd suggest swing trading to increase your gain well above $500-$800 or better yet, trade a futures contract that is much less efficient. If you target bigger gains, you will need to have 100,000s in cash to do these swing trades though. That's why I think you should target some easier futures if you really want to do this, but despite the other comments, I think you are spot on for doing this math. In 2020 and part of 2021, trading futures was easy. Much different game than today. I profited around 1 tick per contract and I traded in large volume. It wasn't worth it. The game is much harder today, I still trade futures on the side but am much more selective and target much higher gains than what I did in 2020 (which was a target of ~$500 a contract,now I target $2000 per contract and I am very selective).
Good Morning Scataphagos, I just thank God for the CME markets everyday I wake up in the morning. I love the CME market, it will change myself and family life forever, and make me a Millionaire. So I hope nothing changes and everything stays the same in the CME ES market until I get rich.
I actually agree. I don't paper scalp SPY but names. More rhythm and less noise. But I paid for it with much wider bid/ask %. It is like picking your poison. My counter parties are not dumb, they are the one with a house in the Hamptons, a yacht and a Lambo.