Trading the SPY vs. the ES

Discussion in 'Trading' started by DaveN, Nov 5, 2003.

  1. DaveN


    I'm starting this thread instead of posting in another that this topic came up, so I don't make it get off subject. The question wasn't asked of me, but I thought I might put some thoughts down for disucssion.

    Here's one reason for trading the SPY: (For argument's sake, let's say that we are talking about 500 shares, so 10 cents SPY = 1.0 points ES). The finer resolution makes for less slippage on entry. If you watch the ARCA or INET/ISLD books during the day, you'll agree that for much of the time there's a penny spread. Now this is more important for someone who trades frequently. Let say that trader takes liquidity. So, for each trade he or she pays the spread. On the ES, that's 1/2 point. On the SPY, it's only 2/10ths. This can add up over many trades.

    On the other hand, the SPY is much more expensive to trade than the ES. At 1 cent/share commission, a trader pays $10 RT for the SPY trade (assuming that the clearing arrangement doesn't also require SEC fees to be paid--another $4.90 in this case--or rebate/charge for liquidity) while most ES traders will pay around $5 RT. So, the SPY trade is 2 or 3 times more expensive.

    But, if you count the savings in slippage of 3/10ths, that's worth $15 right there. So, my point is that without the CME's changing the ES resolution to be more like the SP (1/10ths), the two are pretty much a wash.
  2. I believe for some trading the ES, you're not concerned with PDT rules.
  3. Dpop6


    PDT rules ?
    What is that?
  4. DaveN


    Well, that is certainly true, and an advantage of the ES. In addition, the 60/40 tax treatment for capital gains favors the futures over the SPY.
  5. DaveN


    PDT = Pattern DayTrading

    These are rules for accounts with less than $25k limiting the number of trades that a trader can do in a five day span.