Why trade ES if SPY is much cheaper?

Discussion in 'Trading' started by FT79, May 3, 2008.

  1. FT79


    Yesterday after the close I was bored and compared ES with SPY and if I look at the spread costs (buying on the Ask and immedialty selling on the Bid) and trading costs the SPY is much cheaper the ES. I have used IB for the fees

    ES spread costs $12.50
    ES RT $ 4.80
    Total $17.30

    To get the same exposure in SPY you have to trade 500 shares
    SPY spread costs $ 5
    SPY RT $ 5
    Total $ 10

    The difference is $ 7.30 per round turn / per contract. if you have 10 round turns a day you would save $ 73,-. Why should somebody trade ES or have I missed something?
  2. Tums


    for some... PDT
  3. balda


    You need about $17K to day trade 500 shares of SPY and you need 25K on account to day trade.
  4. ES also offers beneficial 1256 tax treatment (60/40 taxation & current loss write-off against gains of up to 3 years prior).
  5. SPY has the same benefit too. All board base ETF get the 1256 tax treatment.

  6. nlslax



    EFTs are treated as an equity, irrespective of the underlying. Additionally, the "fund" may produce dividends, in the case of SPY, payable quarterly.

    From IRS Form 6781 Instructions...
    Section 1256 Contract
    A section 1256 contract is any:

    ● Regulated futures contract,

    ● Foreign currency contract,

    ● Nonequity option,

    ● Dealer equity option, or

    ● Dealer securities futures contract.

    For definitions of these terms and
    more details, see section 1256(g) and
    Pub. 550.

    Special rules apply to certain foreign
    currency contracts. See section 988 and
    Regulations sections 1.988-1(a)(7) and
  8. heywally


    oops - someone needs to redo their taxes for the last x years.

    I trade the ES instead because of the 60/40, easier accounting, low margin (free cash interest), and almost around the clock trading.

    Plus, I'm not a wildly active day trader so the total transaction cost not that much of a factor.
  9. Pattern Day Trader Rules

    Faster Fills

    No issues selling short (although I suspect that's the case with SPY too)

    Tax advantages

    Lower capital requirements -- this is a big one. You can trade the ES with as little as 10k and do well. You need about 50k with 4x leverage to trade SPY

    What else am I forgetting?
  10. FT79


    I'm from Europe and don't have the Tax burden you guys have. Also PDT is not an issue for me. I understand the Tax burden but still. 7.50 per RoundTurn / Per Contract is a lot. Daytrading around 40 contracts a day would mean you save $ 300 per day. Does the Tax advantage still goes saving this amount?
    #10     May 3, 2008