How to increase your analysis on futures emini S&P (ES) and Nasdaq (NQ)

A lot of traders who trade ES and NQ are doing analysis of these instruments. But what if I say that they just follow by others instruments. In this article I’ll share with you with some interesting information. Maybe I not pretend to be original but if you know futures and other derivatives have period of circulation with with average period of about 3 month. Sure that a lot of them have more long period. And  there are trading several contacts with different expiried date but with the one basic asset at the same time. But all liquidity is concentrating in the last contract. So despite intraday traders and short – terms speculators always have choice  usually thay use big liquidity in the last contract for active trading. But what about big players who need in long-terms goals for 6-12 months and longer? If they use in futures in their own purpose they receive several problem:

  • If big players use futures in long periods they have to pay extra price (in which include risk free rate) every time. Price of futures is different from  asset on risk-free rate. Because for purchasing futures you use just initial margin but not the full value. You can take a difference between full value and initial margin and put on  deposit  in your bank or you can buy risk free instruments (T-bond for example) and receive extra profit.To avoid this extra profit futures sellers include it in price of futures. Why futures mostly more expensive than assets and price of futures follow to assets price and in  day of expiration of futures both prices the same. For some instruments  price difference between  asset and  futures could be from 2% and more per year (it depend on interest rate of central bank, the higher the rate, the higher difference in price). So big players will lose money for overpay on long distance.
  • The second problem is to open positions every time on new contract when old expire. If they have big position they pay  commission once more, and receive slipping during opening, or average price will worse then previous. All of it is addition risk what they want to reduce.

It’s a delusion if I say that big players don’t use futures. They do it. But for short-terms goals. For hedging, in combination with options and for any other reasons. But nature of futures as instruments is short-term goals. But there are some instruments that were made for long goals. And I will write about them. Some big players bet for the market in general. Thay can  use popular shares which are included in index Standard and Poor 500 or NASDAQ index. Or use ETF (Exchange Trades Funds. An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange).  If you trade emini S&P (ES)  you have to know about  ticker SPY. If you trade NQ you have to know about QQQ. Let’s compare ES with SPY and check volumes and correlation between them.

This is 1 day correlation on 1 min bars. As you can see correlation enough big. On other days the correlation usually the same. Arbitrage trading do it.  Now, let’s check day volumes on ES and on SPY. This is day volumes on ES. As you can see average volumes per day 1.5-2 Mio contracts. See picture below.
At the same tame average volumes on SPY is 60-80 Mio contracts,  Despite it trades not whole day but only during pit session. Volume higher more than in 40 times. See picture below.
This greater volume on the similar instrument indicate that bigger players are represented on SPY. Respectively they push price up and down by their actions and ES just follows by SPY. And despite that ES also has own volume and own’s participants (and some of them are very big), ES just follows by SPY.  And the same situation with QQQ and NQ. NQ folows by QQQ. And if you really want to see original volume which can give you information about possibility of price movement you have to make analysis of ETFs during futures trading. This very short resume can save  your money when you will trade futures.

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