Why the S&P E-Mini Stinks

[StevenSJC 10]

I know it's probably sacrilege around here to insult the vaunted S&P e-mini but I'm willing to bet it blows up more traders than any futures market. More than any market I would bet outside of forex which typically pulls in the lowest common denominator (read: get rich quick crowd)

 

There was a really good article in this months S&C magazine that continues to demonstrate this point.

 

The S&P e-mini is hard to trade. You are competing against mega institutions and volume. It's very difficult at times to get a fill unless price moves through your price. It is quite subjective because your system might hit target but you won't so what do you do? I find it creates all kinds of questions and those freakin 0.25 ticks are ridiculous. I'm sure it's great for others but those type of ticks (instead of 0.10) are not great for us traders.

 

The magazine article made the point that sure, the S&P e-mini has great volumes. Incredible volumes. You could easily execute 50 contracts. Which makes me laugh since 98% of traders out there will be lucky to get to 2 contracts. It's like people wanting to make sure that the tax rates at the highest bracket are low because someday they'll be there. Yeah right. Who cares if this market can execute 50 contracts in a heartbeat. You'll never do it.

 

More important is the chart that showed Average Yearly Tick Movement across all the major index futures. Lowest rank? The S&P e-mini vs. the Dow, Nasdaq, Russell small and mid-cap.

 

When you factor in dollar value so average annual dollar movement the Russell e-Mini easily comes out on top? Lagging way behind? The S&P e-mini.

 

If more people would start trading the Russell vs. the S&P I guarantee failure rates while high, would be lower.

 

Trying to jump in and trade amongst the big boys in a market that really doesn't have great range, that forces a lot of subjectivity due to the 0.25 ticks, doesn't lead in any major category but volume which you'll never need or use to me is a just a lure for trading suckers.

 

I know the best of the best here on TL will disagree. And I'm not saying it cannot be traded successfully but if more traders getting going would not chase the crowd in the S&P you'd stand a much better chance.

[Tams 20]

trading is like playing golf

you do your own thing, and the big boys do their own thing

you play against yourself, not anybody else

the score are yours, and yours alone

the mistake are yours, and yours alone

you are your own best friend, and worst enemy.

you can blame it on the club,

you can blame it on the ball,

but ultimately... who cares, but yourself.

[MightyMouse 12]

It seems like you know a lot about es and given what you know about es, you should be able to take that knowledge and trade it. If it means that the best you can do is not trade it, then so be it. That would be very valuable information.

[TheNegotiator 13]

There are probably way more traders who are also successful trading the E-mini S&P500 too. There are just way more traders in it period. If you don't like it, that's fine too. Just find a product which you 'like' and trade it.

[Tradewinds 12]

I know it's probably sacrilege around here to insult the vaunted S&P e-mini but . . . .

The S&P e-mini is hard to trade. . . . . It's very difficult at times to get a fill unless price moves through your price.

 

You are absolutely right. I agree with you. I don't care if you insult the S&P e-mini. It is kind of strange that some people rush in to defend trading when someone vents their frustrations. Does the market need defending? Is the market such a delicate, kind and gentle soul that it needs to be defended by people? I don't think so.

 

And then there are those people who will offer you their advice, because out of the goodness of their heart, they just want to help you. Yah! Right. . . . Like trading is a goodwill industry full of people just trying to help each other. I don't think so!

 

So why would anyone take it personally if someone else criticizes the market or the trading industry? Why would they take it personally?

[StevenSJC 10]

Yes very bizarre comments I must say.

 

It's as if I offended somebodies child

 

I'm just saying, make the case why traders who come into the emini futures world should trade the ES. Besides the fact that everyone seems to do it - and the rooms/signal services all seem to cater to it - because that's where the crowd goes.

 

I think if I can get someone to read this who is just starting out to NOT jump head over heels into the ES first it's worth the battering I'm sure I will take.

 

Regardless, still waiting to hear why the ES is factually superior to other choices.

[Tams 20]

I don't think everyone is doing it

I know lots of people who trade other instruments

but the newbies seems to be attracted to it without question

 

about your comment that the volume is high...

sure it is high, but bear in mind that a lot of the volumes are ins-and-outs with nothing more than a tick's worth of gain or loss. A lot of the volume are not from traders, but from hedgers. They couldn't care less if the market is going up or down, they are only looking at the differentials.

[TheDude 10]

I wouldnt look at a market based on $ range in a day. A traders first priority should be not to lose money. The greedy look first at how much they can make (thus your FX comment which I agree with). Therefore, you should be looking (imo) to make regular, consistent amounts of money. Then scale up in size.

 

The good thing about ES is that it has less tendency to go careering through levels, only to reverse on a dime like ES, CL, 6E do. It does happen sometimes of course, and indeed these moves are heaven for some anyway - free money if you know whats happening.

 

This means ES can be used as a benchmark to see if the other contract (ER, YM. NQ etc) is real or not.

 

Just some thoughts.

 

Generally, 'the pro's' tend to spread es against something similar - ym, nq, cash, spy, big s&p etc. in fact, the reason es has .25 tics was to create an arb between sp & es.

 

i agree with the original premise. new traders should trade ags or FI IMO.

[flyingdutchmen 10]

Making consistent returns daytrading the ES is a lot harder than most think... in fact it might be the hardest game in town but for some reason it's what the mayority of internet forum readers want to do.

maybe it's partially about being a badass ("I'm an S&P trader") but it's much harder than trading has to be. The S&P futures are usually one of the most random and noisy markets out there.

[steve46 12]

Well clearly I am biased....I make a nice living in this and other markets and for me...while it requires focus and preparation, once you have a viable systematic approach it is very straightfoward..

 

The original comment seems appropriate in that it reflects the retail trader's inability to find a way to "make sense of" and to recognize opportunity in this market. This is very common in persons who are inexperienced or who lack skills or suitable background...as an aside...one can fill these deficits fairly quickly if they are motivated...having trained people to do this, I can say with confidence that a motivated person can find success if they apply themselves..

 

Personally I like the S&P, bond and currency markets about equally...and once you have a workable system, (using supply/demand as a basis) they offer nice opportunity for profit...

 

Whether an individual person believes that or not is not of particular concern to me, but I do empathize with those who might be having trouble...it can be frustrating...

 

Edit

 

By the way, if the original poster wants to check out a different approach, they might want to read my thread titled "an institutional look at the S&P Futures"....If I can be of help...just PM me..

 

Best of luck to all

[TheNegotiator 13]

Okay steve, enough of plugging your own threads already!! Lol. The ES is difficult for noobs because they are told to go for a liquid market and the ES is just that. But when they see all the action and mistake it for trading opportunities, they inevitably get sucked in and many do lose again and again. However, it is a solid and liquid market, meaning if you have an effective strategy, then you can scale up in size very well. Also, it is quite a technical market.

[emg 12]

I know it's probably sacrilege around here to insult the vaunted S&P e-mini but I'm willing to bet it blows up more traders than any futures market.

 

 

It doesn't matter whether emini sp is hard to trade. Futures/commodity market overall is hard to trade which is why more than 90% of small traders lose in a "Spectacular Fashion." They just lose!

 

1 out of 100 small traders will make out in this game and trade for a living.

[steve46 12]

Okay steve, enough of plugging your own threads already!! Lol. The ES is difficult for noobs because they are told to go for a liquid market and the ES is just that. But when they see all the action and mistake it for trading opportunities, they inevitably get sucked in and many do lose again and again. However, it is a solid and liquid market, meaning if you have an effective strategy, then you can scale up in size very well. Also, it is quite a technical market.

 

What an interesting comment....Perhaps you could outline what you mean by "an effective strategy"? In my threads (the ones you prefer I don't "plug") I outline a method that I have used for over 10 years...I guess I have to remind myself that there is always something new to learn....by all means please continue your thought.....

Edited April 26, 2011 by steve46

[emg 12]

What an interesting comment....Perhaps you could outline what you mean by "an effective strategy"? In my threads (the ones you prefer I don't "plug") I outline a method that I have used for over 10 years...I guess I have to remind myself that there is always something new to learn....by all means please continue your thought.....

 

 

here is an advice why emini sp is hard to trade:

 

1) Under capitalized. The minimum to trade in the futures market is $100K and begin 1 contract. if begin less than $100K, it gets harder to trade. After all, we are dealing and trading with margin. it is not like stocks where u buy and own it.

2) Of course u know the funds are controlling the es and are winning while more than 90% of small traders are losing, If u want to win the game, join the house. Why stick with more than 90% of losers group.

 

 

More to come.

[TheNegotiator 13]

What an interesting comment....Perhaps you could outline what you mean by "an effective strategy"? In my threads (the ones you prefer I don't "plug") I outline a method that I have used for over 10 years...I guess I have to remind myself that there is always something new to learn....by all means please continue your thought.....

 

Hmm. I'm not entirely sure it needs elaborating steve. If you have a profitable method, you can do it with more contracts in the ES. I am sure your strategy has worked superbly well for you for 10 years plus. However, I wasn't commenting on your strategy. Just that although the ES is a very difficult market for noobs, it is also a very good market once it's learned.

[TimRacette 11]

I would argue that the ES is the most technical instrument there is, that being said, you are competing against the best traders in the world. My second point would be that most hedge funds use the ES as a hedge for their long stock positions, to put it simply.

 

First published in the Brady report It's the consensus among many traders that the October 1987 crash was caused in large part due to this hedging known as portfolio insurance, selling large amounts of futures contracts against their long positions.

 

Will all that, I still love the ES, 2010 was a fantastic year for trading it. 2011, not so much. The Euro is a much wider instrument to trade in that the moves are still technical and it moves in price swings equivalent to 25 ES points a day. If I had one instrument to trade right now, it'd be the Euro Futures.

[Qiman 10]

One problem that I see is that many newer traders are trying to use scalping methods on the ES, and there is often so much back and forth arbitrage movement that they often get stopped out. It can get pretty noisy with all the program trading -- robots in a tug of war. But if trend following with a large enough wiggle room for an intelligent stop, then it can be a much more effective instrument. With that being said, I still prefer the NQ for its tick size, smoother movement and less arbitrage activity. And some days much better range as well.

 

As someone trained in both international economics and geopolitics, I really prefer the contracts that have much to do with the world economy in a more direct way, i.e., the currencies and quasi-currencies. I too prefer the currency futures over indexes, where I can apply my education more effectively. The 6A, 6B, 6C, 6E, 6J, 6S, all of them can be very lucrative at their own times. And GC and CL have times where the trends are amazing. Nice that we futures traders have so many options. I am very grateful for this amazing market and wouldn't trade it for any other!

[TheNegotiator 13]

One problem that I see is that many newer traders are trying to use scalping methods on the ES, and there is often so much back and forth arbitrage movement that they often get stopped out. It can get pretty noisy with all the program trading -- robots in a tug of war. But if trend following with a large enough wiggle room for an intelligent stop, then it can be a much more effective instrument.

 

Yeah, that is a good point. To add to it, not only do the noobs often have a totally unsuitable internet connection, but they are competing with algos which have the fastest connection right next to an exchange and they have near zero reaction time for their decision-execution time. It's just a big exciting fruit machine basically for these guys!

[steve46 12]

Okay, lets see if we can get past the urban myth about automated execution (among other things)

 

First, automated execution is not new and is just a part of this market. It affect all markets not just the NYSE so if any of you want to become professionals you are going to have to deal with it....not just the newbies...

Second...it really doesn't affect new traders much...what really causes new traders problems is their own ignorance and the fact that for the most part newbies are unwilling to take the time to get a decent education about how the markets work...and frankly reading all the misconceptions about automated trading here doesn't help..

Now I am not here to put on a seminar but what I am willing to say is this....once you understand what automated trading is about, and how it is implemented, actually you can USE that knowledge to position yourself in such a way as to benefit from it...for example in my classes we position ourselves in front of cirtical time periods when we expect automated execution to occur...when we are correct, that automated activity is the "fuel" that propels the market to our profit target...the point is that knowing when to trade...and when to stand aside is important...and newbies (and apparently newbies aren't the only ones) haven't done the homework necessary to know how to act in this regard.

So Negotiator (sir or madam) here's my offer to you...if you want I will make it possible for you to observe and see how it is done...no strings, no concern on my part either way...that way you can make an informed judgement about this subject and perhaps come away with something of value for your own trading...

let me know..

Best Regards

Steve

Edited April 27, 2011 by steve46

[TheNegotiator 13]

Steve, thank you for your kind offer to show me the way. However, I am quite happy the way I trade and make money doing so. Not to say you are ineffective trading the methods you use. But what you are talking about is not the point I was making. I have seen noob traders with slow computers and appalling connections lose lots of money down to naive attempts at scalping the market. It isn't the main reason they lose. But it happens, period. I agree with you that algos also operate in most other markets, but I would add that the intensity is just not the same. But hey, you can agree or disagree with me! That's the beauty of debate. The key thing about it I would say is that at some point even if you have an awesome amount of knowledge, you learn something.

[steve46 12]

Well to return your "serve"...lets be clear...I certainly do not claim to have exclusive access to "the way" to trade...its a big world and there are numerous ways to participate in the markets.

 

Also I hope never to be too proud to learn something new...one reason I stay with this is that I can often learn new things or find new concepts that serve as a point of departure for my own research.

 

With respect to high frequency execution..those programs largely exist to obtain what the industry calls a "peekaboo" look at order flow just prior to execution. Those who participate in these activities may deny that, but in reality that is just what they are doing...It requires special data feeds, high speed equipment as you have suggested and co-location. Also it requires a special type of software program to evaluate the data stream and put in place a logic driven basket execution to take advantage of the information obtained. The reason I suggest that these actions have little effect on retail traders is that they are completed in milliseconds and the effect is similar to either a "Liquidnet" pool transaction or "program A" reportable block transaction..The primary difference is that these participants are looking for incremental profits (often taking profit on fractions of a point) not a significant move in price.....and for the most part these activities are buffered amongst the vast volume of both pit executions and automated off site programs...in essence it all blends together...and frankly these transactions have very little effect on intraday market movement.

 

Finally, one can get a quick look at some of the automated executions by simply putting $TICKI chart in place on your screen (assuming you have Esignal as your data provider)...tomorrow for example you will probably see executions go off at 6:40am and again at 7am. These transactions can be seen whent the reading on the chart goes to 25 or more..

 

Well I don't want to bore people with too many details...so please do carry on as you were.

 

Good luck to all in the markets

Edited April 27, 2011 by steve46

[TheDude 10]

If you algo junkies want to get a real hard on, look at:

 

Unified Latency Management for Financial Markets - Corvil

Complex Event Processing, Event Stream Processing, StreamBase Streaming Platform

 

While you tug yourselves off, I'm gunna make me some real coin trading lean hogs, corn, soy beans, all the dull boring stuff that only the farmers trade. Candy from a baby springs to mind.....

[Qiman 10]

I wonder how many hypertraders of the ES actually make money? Any here? In my experience at least, the ES seems to have more stop-running back and forth arbitrage due to how many forces use it for that purpose, at least compared to say the NQ. When I compare the two side by side the NQ is often less herky-jerky. And yet the internet is full of advice as to how to scalp the ES for a point here and there. Scalping noise is a very, very tough game, even with fast computer connections, and if some of these ES scalpers would be much more patient and wait for pullbacks and clearer entries, based on supply and demand, they might be able to ride some nice waves for several points at a time with less chance of getting stopped out. Some trade the ES 20 times a day or more, but with transaction costs and chasing random activity, no wonder so many give up in disgust. Some few out there are brilliant scalpers of the ES, and my hat is off to them. But for most traders trying to make money with this very liquid contract, it might be better to patiently trade the two or three times a day when the probabilities are more clearly in your favor.

[steve46 12]

I wonder how many hypertraders of the ES actually make money? Any here? In my experience at least, the ES seems to have more stop-running back and forth arbitrage due to how many forces use it for that purpose, at least compared to say the NQ. When I compare the two side by side the NQ is often less herky-jerky. And yet the internet is full of advice as to how to scalp the ES for a point here and there. Scalping noise is a very, very tough game, even with fast computer connections, and if some of these ES scalpers would be much more patient and wait for pullbacks and clearer entries, based on supply and demand, they might be able to ride some nice waves for several points at a time with less chance of getting stopped out. Some trade the ES 20 times a day or more, but with transaction costs and chasing random activity, no wonder so many give up in disgust. Some few out there are brilliant scalpers of the ES, and my hat is off to them. But for most traders trying to make money with this very liquid contract, it might be better to patiently trade the two or three times a day when the probabilities are more clearly in your favor.

 

Your point is valid..I think very few people really think about what it takes to profitably scalp any market much less the S&P Futures...unless you have a way to cut costs (all costs including commission) down significantly, it isn't economically feasible...In my opinion, retail traders are drawn to scalping because they cannot tolerate the physical tension associated with holding a position...they think that because they can ring the register a couple of times quickly that

THAT constitutes a viable strategy...it doesn't....to overcome expenses one has to make sure that they manage risk very carefully and on top of that you have to find a way to be bigger when you win (bet sizing) than when you lose.....there is a way to do it but most retail traders don't take the time to learn....so they are doomed from the start...its part of the reason so many fail or quit....and if I may...that is why trade rooms and the poor folks who participate in them....usually end up the same way....with a net loss...there's more to this business than setups....and once a person figures it out they have only a few choices...either learn to manage risk and to bet properly or, go find another hobby...

[Qiman 10]

In my opinion, retail traders are drawn to scalping because they cannot tolerate the physical tension associated with holding a position

 

I agree, and in a way for some, this scalping activity can be an attempt at escaping the necessity of risk management, only holding a position for a minute eliminates the need for patience, which is a key part of risk management. Risk management or uncertainty management is what trading is all about, and until one totally surrenders to uncertainty and makes peace with it, the emotional and physical tension associated with holding a position is unbearable.

 

BTW, your recent points elsewhere regarding supply and demand were much appreciated and excellent, and I personally am focusing more of my effort on patiently observing supply and demand, understanding it through observing price action as opposed to relying on market profile or any technical indicators. So many traders try to make money with such complicated charts, and I appreciate elegance and simplicity in trading.