20 Advantages of Futures Over Forex, Stocks and ETFs

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Why do the Pros Daytrade Futures?

The Powerful Advantages of Trading the E-Mini S&P 500 Futures over
Stocks, ETFs and Forex
Have you ever wondered why many traders prefer futures over equities and/or Forex? If your answer is
"yes" and you are interested in daytrading this is definitely an article you should take a minute to read. Make
no mistake, there are substantial risks involved with futures daytrading and it is not suitable for all investors,
but I feel the following 20 points demonstrate the particular advantages of daytrading the E-mini S&P 500
over trading stocks, Forex and ETFs like the SPDRs and QQQs.

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1. Efficient Market
During normal market hours the Emini S&P 500 (ES) futures have a tight bid-ask spread of typically 1 tick or
$12.50 per contract. With a current approximate contract value of about $50,000, that comes out to .025%
of the contract value, which is one of the best spreads in the trading world. This spread should be
considered your cost of entry (not unlike commissions) to enter and exit the market. The wider the spread,
the more the trade has to move in your favor just for you to get to break-even.
Depending on the stock or currency pair you are trading the bid-ask spread may be much wider. Also, since
Forex firms "create" the market and therefore, the bid-ask spread, they can widen it to whatever they see fit.
Even when Forex firms advertise a fixed spread, they typically reserve the right to widen when they see fit.
Typically, this spread is anywhere from $15 to $50+ depending on the currency pair and market conditions.

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2. Central Regulated Exchange

All ES trades are done through the Chicago Mercantile Exchange and its member firms where all trades are
recorded in an official time and sales. All trades are made available to the public on a first come, first served
basis and trades must follow the CME Clearing rules, along with the strict CFTC and NFA rules.
Forex trades occur "over the counter," (off any exchange floor or computer) where there is no centralized
exchange with a time and sales report to compare your fill. Traders with different firms can experience
different fills even when trades are executed simultaneously. Even more alarming is that in some cases the
Forex brokerage firm you have an account with takes the other side of your trade and is therefore "betting"
against you. Even for equity trades many stock brokerage firms direct your trades to brokers that give them
a "haircut," rebate or kickback for your order or they go to dark pools or are shown to flash traders before
made available to the public. Again, this can become a conflict of interest since your order may not be
getting the best possible execution.

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3. Low Commissions
ES commissions are only about $2.00-$3.00 per side and larger traders can even lease a membership to
further reduce their fees. This low transaction cost allows daytraders to get in and out of the market without
commissions significantly cutting into their profits, but of course the more trading you do the more this will
impact your bottom line.
While most Forex firms do not charge a "disclosed" commission, they make their money by creating their
own bid/ask spread and taking the other side of your trade, typically costing much more than the transaction
costs of the ES. The average discount stock brokerage firm charges $5-10 per trade, which can really eat
into your potential daytrading profits.

4. Level II Trading
You can see the 10 best bids and 10 best asks along with the associated volume in real time and you are
allow the placement of your order at any price you wish when trading the ES. This transparency of the
markets orders allows ES traders to see where and how many orders have been placed ahead of them. For
short term daytraders this information may be very valuable and may be used as an indication of future
market movements.
Most Forex platforms do not offer Level II type pricing and for the few that do, since there is no centralized
market, it is only the orders that that firm has access to and not the entire market. Also, most Forex firms do
not allow you to place an order within a few ticks of the last price or between their posted bid/ask spreads,
further limiting your trading abilities.

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Online trading has inherent risk due to system response and access times that may vary due to market conditions, system performance,
volume and other factors. An investor should understand these and additional risks before trading. Options involve risk and are not suitable for
all investors. Futures, options on Futures, and retail off-exchange foreign currency transactions involve substantial risk and are not appropriate
for all investors. Please read Risk Disclosure Statement for Futures and Options prior to applying for an account.
*Low margins are a double edged sword, as lower margins mean you have higher leverage and therefore higher risk.
All commissions quoted are not inclusive of exchange and NFA fees unless otherwise noted. Apex does not charge for futures data, but
effective January 1, 2015 the CME charges $1-15 per month depending on the type of data you require.

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you choose to start with.

The SEC describes a stock trader who executes 4 or more daytrades in 5 business days, provided the
number of daytrades are more than six percent of the customer's total trading activity for that same five-day
period, as a Pattern Daytrader. As a Pattern Daytrader you are required to have a minimum of $25,000
starting capital and cannot fall below this amount.

10. Liquidity
The Emini S&P futures trade about an average of 2 million times a day which allows for great price action,
volatility and speedy execution. At a current approximate value of $50,000, that is over $100 billion changing
hands every trading day.
Not all stocks and Forex markets are as liquid which means movements can be shaky and erratic, making
daytrading more difficult. Forex firms like to make the claim that the over the counter foreign exchange
market trades more than one trillion Dollars in volume per day, but most people don't realize is that in most
cases you just traded against your broker's dealing desk rather than the true interbank market.

11. Tax Advantages

US Futures traders have favorable tax consequences for short term traders since futures profits are taxed
60/40, which means that 60% of the gain is taxed at the maximum rate of 15% (similar to long-term gains)
and the other 40% is taxed at a maximum rate of 35% as ordinary income.
Securities positions held for less than 12 months are considered short term gains and taxed at 35%. Of
course everyones tax situation is different and should consult a licensed accountant for their specific

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situation.

12. Diversification
When trading a stock index like the Emini S&P futures your "news risk" is spread out over the entire market.
Should a report or rumor come out on an individual stock it should have very little impact on the whole index
you are trading.
When you take a position in an individual stock you are susceptible to stock specific risk which can occur
without warning and with violent consequences.

13. Safety of Funds

When you trade the ES you are trading with a Commodity Futures Trading Commission (CFTC) regulated
and National Futures Association (NFA) member firm which is subject to the customer segregated funds
rules laid out by the US government.
Even with regulated US Forex firms, funds are not considered segregated, so if a regulated firm goes
bankrupt clients funds are not offered the same protections as they are in the futures market.

14. Focus
Many ES futures traders only track the ES market and find it is the only chart they need to follow. There are
always opportunities and great volume throughout the trading day. When large institutions or traders want to
take a position in the market or hedge a portfolio they usually turn to the futures markets to get this done
quickly and efficiently. Therefore, why not trade the market the "Big Boys" trade?
Most traders agree that individual stocks and therefore, the market as a whole follow the futures indices,
and not the opposite. In fact, many stock traders will have an Emini futures chart up next to the stock they
are following. As a stock or Forex trader you may need to scan dozens of stocks or currency pairs for
opportunities. Many times specific stocks fall out of favor so volume and, therefore opportunities dry up and
traders are forced to find a new stock to trade.

15. Go Short
There are no rules against going short the ES, traders simply sell short the ES contract in hopes of buying it
back later at a lower price. There are no special requirements or privileges you need to ask your futures
broker for.
Most stockbrokers require a special account with higher requirements for you to be able to go short. Some
stocks are not shortable, or have limited shares that can be shorted. Also, up-tick rules could be re-enforced
and in the past the government has put temporary bans on stocks that can be shorted.

16. Direct Correlation

On average the ES futures are directly correlated to the underlying S&P 500 index in the short and long
term. If you pull up an Emini S&P 500 futures chart and compare it to the S&P 500 index chart they should
almost look identical.
Double or triple weighted ETFs do not track the S&P accurately over longer periods, and some currency
ETFs have credit risks associated with them which could hinder their ability to correlate.

17. Deep Market

The S&P 500 index is comprised of very actively traded stocks with some of the largest market
capitalizations and with hundreds of billions of dollars invested in some fashion in them. With such large
dollar values and high trading volume it would be very hard to manipulate its movements.
On the other hand sometimes it is easy to move or even manipulate a particular stock and even a foreign
currency market. George Soros has been accused of intentional driving down the price of the British Pound
and the currencies of Thailand and Malaysia and many stock "promoters," insiders and markets makers
have been convicted of manipulating stocks.

18. Big Players

The old adages follow the "big boys" and "smart money" are usually true when it comes to trading, and large
money managers, pension funds, institutional traders, etc. tend to be very active traders in the futures
markets. The S&P 500 futures contract is generally recognized as the leading benchmark for the underlying
stock market movements.
Most active equity traders admit they first look to the index futures for an indication of what the stock they
are trading might be doing, so why not just trade the leader of the market, the Emini futures?

19. Volume Analysis

Volume can be one of the most useful indicators a trader can use, those little lines at the bottom of the chart

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are not just there to look pretty they should be used as another indication of the validity or lack thereof, of a
particular move. In other words combined with other indicators and/or chart patterns volume can be used to
confirm a move in the market. Most market technicians would agree that a move made on relatively light
volume is not as significant as a move made on heavy volume and should be treated accordingly.
Since the Forex market is over the counter (OTC), there is no centralized exchange, no one place where
trades take place therefore, there is no accurate record of volume and most, if not all, Forex charts will not
show any indication of volume. So what might appear to be a significant move on a Forex chart, may just be
a false move on low volume and could not be filtered out if you were looking at a Forex chart.

20. Clearing Reliability

During the May 6, 2010 "Flash Crash" the Emini S&P futures continued to trade within a reasonable price
range reflecting what the cash S&P 500 index was indicating. No trades on the Emini S&P futures were
cancelled and all trades cleared.
According to the joint study by the SEC and CFTC, ETFs made up 70% of the securities with trades that
were later canceled. Furthermore, there were about 160 ETFs that temporarily lost almost all of their value
and 27% of fund companies had securities with trades broken. Had you bought or sold during this event you
may had been notified after the market closed that your trade was no longer good and left with potentially
dangerous consequences.
As you probably already know trading is hard enough, so why choose a market where the odds are stacked
more against you before you even place your first order. The above mentioned 20 points clearly make the
E-Mini S&P 500 futures the best choice for daytraders and will give you the most bang for your buck. Before
you trade futures, though, please make sure they are appropriate for you and that you only use risk capital.

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