I currently trade 8000 shares of QQQ on Island once or twice a day. I hold for up to 90 minutes, often shorter, but never longer than this, regardless of my profit or loss to that point. I am fairly satisfied with QQQ on Island and have made money but am always looking to improve my results. My broker JRP Capital has started offering Emini trading and I am considering trading the Nasdaq Emini instead of QQQ. I have NEVER traded any type of futures before. I am looking for some advice an answers before I even attempt to make a switch. Any advice experienced traders can provide is welcome. I have several specific questions: 1. Would it be "cheaper" for me to trade the Emini instead of QQQ? In terms of lower brokerage costs? Lower spreads if I constantly decide to hit the bid/offer? (note - JPR offers round trips for $10, I know that is high, and am willing to switch to another broker if necessary in the future) 2. Would I find more liquidity trading the Emini? I currently have little problem trading 8000 QQQ efficiently before 10:30 AM on Island in the morning, but find its often difficult to trade 8000 shares late in the day without overpaying for them if hitting the bid/offer. And I plan to trade even larger blocks of shares in the future. More liquidity would be better. Am I going to find it with the Emini? 3. Am I going to be more confused trading futures? I realize there is going to be a learning curve that will take time. But I often wish the QQQ market moved a bit slower, prices move faster than I can type sometimes. Am I going to find futures prices swing even more rapidly, or does the speed of the price movement trading the Nasdaq Emini feel about the same as trading QQQ on Island? 4. Is there any advantage to trading the regular Nasdaq contract versus the Emini? My 8000 QQQ shares per trade equate to $300,000+ at current pricing. I could trade either 10 Emini contracts or 2 regular Nasdaq contracts. But everyone seems to love these Emini's. Why would I want to trade 10 Emini's versus 2 regular contracts? 5. Will I experience the same percentage move results over time? For example, if I buy both QQQ and the Emini at 10 AM and sell at 11 AM for 10 days in a row, will the sum of my 10 percentage moves in those 2 instruments basically be the same? I realize there might be a difference due to different brokerage costs, but I am talking about the percentage move results BEFORE taking into account brokerage costs. Because I am looking to get basically the same percentage moves with the Emini as I do with QQQ. Can I expect that to be the case? Thanks for any answers and/or additional advice.
Hi canadian dude, To your questions, I've answered below. This is one person's opinion, please take it as such: Quite possibly. Using Interactive Brokers as a benchmark, you'll pay $2.40 per side, all in, which equates to 3/10 of a cent per share on the QQQ. Your broker's charge of $10 per RT would be something like double that, which is still quite good. The spread is usually 1 tick wide, or 1/2 point, $10/contract, or 1.25 cents in QQQ equivalents. Fill speed on GLOBEX (electronic trades for the mini contracts) is easily as fast as trading with direct access on ISLD. Another thing to consider will be your taxes. If you are trading successfully, your profits from trading broad based index futures contracts (like the NQ and ES) will be taxed 60/40, long term gains and short term gains, even if you're scalping. This tax treatment should not be underestimated, especially if you are *very* profitable. Compare this with paying taxes on your QQQ trades at 100% short term tax rates. A good friend of mine typically puts on 350 mini contracts per trade (yup, no typo there). Most of the order will be filled at his price, and in most cases, he will see only 1 tick slippage on the remainder. For the NQ, you'll see often see contract volumes of well over 200,000 per day. At $20*200,000*1500=$6B traded per day. For the QQQ: 80M shares/day*$36=$2.8B traded per day. Futures shouldn't be confusing. But they will move at least as wildly as the QQQ. If you are trading, say 10 minute bars or more, the movement will be fairly smooth--and the NAZ does do some nice trending intraday. If you are trading really short term bars, then you need quickness because this market can move. Slippage, slippage, slippage. That same friend that does the size in the electronic contracts used to trade through the open outcry pit on the big contract. Even though the big contract trades in 1/10 increments versus 5/10 increments for the mini, his experience has been that his fills and slippage have been drastically better trading the mini electronically. Consider the spread that I mentioned above in the NQ (1.25 cents QQQ equivalent), compare that with your experience in the QQQ on ISLD, then compare some moves. Check out www.barchart.com and use NQM2(Mar6,'02 to present) or NQH2(Dec'01-Mar'02) to compare 5 minute bars with the QQQ. The move that is just completing was good for 45 points in the NAZ mini (1538-1583) and for 1 point in the QQQ (38.15-39.13), so it's about a wash: $900 vs. $800, less slippage, spread, and commission.
"A good friend of mine typically puts on 350 mini contracts per trade (yup, no typo there). " What's yout friends typical hold time per trade?
I don't know how any trader can trade 350 contracts at a time without holding it for a significant amount of time. Each tick is 7000 with 100k+ swings daily. Somehow this is hard to believe. Is your friend a famous trader?
IN over 18 months futures trading I do not think I HAVE EVER seen a bid or ask size of 350+ on my quote screen so it does seem a little hard to believe one trader trades that size. But anything is possible i suppose.
Not possible. Any single trade over 30 contracts will be executed AON at one price (not necessarily at best bid/offer).
Read it and weep: http://www.cmerulebook.com/cmewg/wg.dll?page&file=c5 Rule 557.B. Execution of Orders Note #4 above says "may be executed" and not "must be executed". The friend *could* trade 350 at a time as long as he did it as 2 or more orders of 250 or less. Whether the friend *does* trade that many is anybody's best guess. It would be possible to disguise his size by placing his orders at the ask when the ask had say 150 cars for sale.
canadian_dude wrote: 1. Would it be "cheaper" for me to trade the Emini instead of QQQ? Yes. Since 800 QQQ = 1 NQ, trading NQ will be like trading 800 QQQ shares for $2.40 or less, which comes to 0.003/share or less . This is 3.3 times cheaper than trading QQQs at 1 cent/share. 2. Would I find more liquidity trading the Emini? Yes. DaveN showed that the value of NQ traded daily is $6 B, while QQQs' is 2.8 B. Moreover with QQQ you may get partial fills, while trading NQ you'll "get QQQs" in round chunks of 800 shares. 3. Am I going to be more confused trading futures? No. Since 1 NQ = 800 QQQ, trading NQ is exactly the same or better (no partials) than trading 800 QQQ shares on Island: Chart patterns, volatility, percentage moves, confusion, swing speed etc. are the same. 4. Is there any advantage to trading the regular Nasdaq contract versus the Emini? No. Trading Emini trading has an advantage. Eminis and Island trading is electronic, while pit and AMEX trading is through middlemen - MarketMakers. Trading Eminis is like trading QQQs on Island, pit trading regular Nasdaq contracts is like trading QQQs on AMEX. Middlemen human execution of orders, frequently carry much more slippage than direct access electronic execution. 5. Will I experience the same percentage move results over time? Yes. NQ and QQQ are proportional, because of the mathematical relation: 10 NQ = 8000 QQQ (+small premium). Therefore percentage moves are practically the same. To sum up: With lower commissions (equivalent to 3/10s of a cent per share) , better liquidity, less partial fills and 60/40 tax advantage; Eminis are much better trading vehicle than QQQs. Fohat
Fohat.. well said.. i thought i would also point out the 60/40 long term/short term tax advantage of futures as well.. -qwik