S&P, Dow, NASDAQ Or Russell Futures: Which One To Trade?


Those new to emini trading often have difficulty determining which index futures contract is the best fit for them. For this reason we are going to outline and profile each contract for those who haven’t quite yet grasped the differences between these four very unique trading instruments.

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The S&P futures contract is the most popular and rightly so since not only is it traded exclusively by many, it is also used by stock traders as a strong indicator for daily market direction. Most stock traders will always have a live chart or ticker open on their trading platform displaying real-time feeds of these futures since they are literally the ring in the bull’s nose. Wherever they go, the cash market will follow making the S&P 500 index futures a very important tool for those utilizing short term trading methods in the stock markets.

S&P 500 Futures Contract

The Chicago Mercantile Exchange or CME, introduced the S&P mini sized contract in the 90’s as an alternative to the larger sized S&P futures contract since the original contract became too large for many smaller traders to utilize. The smaller S&P mini contract is one-fifth the size of the larger, original contract and is traded electronically through the Globex system.

The contract up ticks and down ticks in quarter points and is the minimum price movement with each quarter point tick equal to $12.50 with a whole point value of $50. The S&P futures market is highly liquid and is employed by institutional traders for speculation and hedging. It is not uncommon for the mini SP contract to trade as many as ten-thousand shares in the course of one minute to give an example of market depth and the amount of daily volume as well as to underscore their importance as a vital trading indicator and about market sentiment. Trading without one eye on the S&P futures is akin to trading blindfolded.

ES S&P

The symbol for the S&P futures contract is ES. Of course this only refers to the basic contract in general terms. Futures contracts are derivatives which means their value is derived from an underlying issue, in this case the S&P 500 cash market. As a derivative, they have expiration dates and cease to hold any value after a set expiry date. Expiry is determined by four different months starting with March, followed by June, September, and December, meaning there are four different contracts within a calendar year. Each month has a different letter within the ES symbol to identify which month the contract will expire. The identifying letters are as follows:

March = H
June = M
September = U
December = Z


Not only does the ES contract symbol contain the month in which it expires, it will also contain in which year it expires. For example, if someone were trading an ES contract which will expire in December 2012, the symbol would be ESZ12, which identifies what type of contract (ES) along with what year (09) and month (Z) the contract will expire.

The ES is an excellent futures instrument in which to trade, however it is not the only one by any means. Some traders prefer trading on different exchanges than the S&P 500 as we will discover.

NASDAQ NQ Mini Futures Contract

After the introduction of the ES S&P 500 futures contract the NASDAQ NQwas introduced. Tracking the top 100 stocks on the tech heavy NASDAQ stock exchange, the NASDAQ NQ soon became very popular among index futures traders, although never surpassing the popularity of the ES. Designated with the symbol NQ, the NASDAQ contract also trades in quarter points but is valued differently. Each quarter up tick or down tick is equal to five dollars ($5), with a total up tick or down tick point worth twenty dollars ($20).

The same symbol system applies as the ES as does expiry months. With the NQ, if a trader were to take a position in the December 2012 contract, the symbol would be NQ12Z. The mini NQ also has excellent liquidity and volume each day allowing futures traders several opportunities each day to initiate trades.

DOW YM Mini Futures Contract

Although the DOW YM contract has not been around quite as long as the ES or the NQ, it has however, seen an explosion in popularity among index futures traders. Tracking the Dow Jones Industrials Stock Exchange, the DOW mini futures or YM as it is designated, has seen increased volume and liquidity since it’s introduction and has converted many long term ES traders which now trade the YM exclusively

YM futures contracts follow the same symbol designations as the ES and NQ as outlined above. A December 2012 contract would be YM12Z identifying the contract type (YM-DOW); expiry year (12); and expiry month (Z-Dec.). Another factor unique to the DOW YM contract unlike the ES or NQ is it does not trade in quarter points, rather it trades in whole points with each up tick or down tick equal to five dollars ($5). Growing in volume and popularity, the YM is an excellent choice for all index futures traders including those new to the market seeking an education and to test strategies.

Russell 2000 Mini Contracts

Although less utilized than the other three contracts for trading, the mini Russell contract is still an excellent choice as a trading instrument. The Russell 2000 mini is one-fifth the size of the larger contract with the Russell 2000 tracking 2000 securities on the Russell 3000 stock exchange.

This contract is also uniquely different from the other three in it trades in .10 increments equal to $10 for every .10 up tick or down tick with each whole point equal to one hundred dollars ($100). The symbol for the Russell is ER and fit’s the same criteria as the other 3 for identification purposes and expiry. A December 2012 contract would designated as ERZ12. Some traders favor the Russell  contract over all others, claiming this contract trends better than the others and eliminates noise since it tracks many more stocks than the other three index futures contracts.

Strategy

Index Futures trading is most often utilized as a day trading method or scalping method and all positions are exited when the bells sounds closing the cash market, although the futures market is open 23 hours daily. Traders employ many different approaches when trading futures contracts. Some rely only on support and resistance numbers in conjunction with pivot points. Others will use simple moving averages and crossover methodologies, while some will utilize classic Japanese candlestick formations in combination with indicators and oscillators such as the Stochastic, MACD or RSI. Whatever method chosen, emini trading lends itself very well to different approaches to the index futures market no matter which contract is traded.

As mentioned above, the S&P mini futures should be used as a indicator of market direction even if the trader is utilizing a different index futures contract, since the ES is the ring in the bull’s nose and the market WILL follow their direction. Also, the NYSE TICK is an excellent indicator for determining market internals and sentiment. Newer traders may wish to join a trading room to follow along as experience traders call out trades and explain why they enter and exit the market at certain points. A trading room is an excellent way to build confidence and skill levels for rookie traders.

3 comments:

I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


Patricia

http://forextradin-g.net

get your free trading book "Trade the opening gaps"

Thanks. I think you went too much in details with this article.There are a lot of things to say about this article and we can debate it all night long, probably.
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