Dave, I really enjoy your straight forward evaluation. I want to trade
on-line w/the e-mini's, but I'm confounded by the high comish when I don't
even want a brokers opinion or time. Could you recommend a brokerage that
has R/T that goes to the floor for good fills and a resonable price?
Thanks again for the terrific site and your advice!
In reply, yes, the e-mini sp commissions are incredibly high based on the
very small contract size! For example, ZAP Futures offers average
commission rates of between $20 to $23 or so per round-turn. This is based
on a contract valued at only $50 for a 100 point move. 100 Points is
considered a good size move. In fact, when we made our original Real
Success Method Videos in 1996 we usually had a target price of between 60
to 100 points. 100 Points was considered a real good move.
Back then 100 points equaled $500. That contract size no longer exists and
was replaced by the a new full-size SP 500 market, which is one-half the
size and 100 points equals $250. The E-Mini SP is only one-fifth of the
halved regular contract, or one-tenth the size of the old contract. It's
only valued at $50 for 100 points.
The current brokerage commissions quoted by ZAP Futures of approx $20 to
$23 or so was readily available when the old large S&P Contract was
trading, in fact at that time day-traders frequently obtained discounted
commission rates of approx $15. However, we will calculate this scenario
on the current approx $20 "low" commission rate, rather than the typical
lower rates of a few years ago daytraders could get on the large
At a $20 commission cost, the commission equaled just 4% of a typical 100
point move. Now this same commission rate equates to 8% of a 100 point
move, or double the commission rate!
Much worse is the fact our example $20 "low" commission rate equals an
incredible 40% of a typical 100 point move, as 100 points is only %50.
This means for every 100 point profitable trade you will only get $30 in
profits and that's providing you are not factoring in Exchange Fees and
have no slippage.
By the way, though the fills with ZAP are almost instantaneous and
extremely good it seems like at least a one-tick slippage factor may be
expected on most of the trades. Since the e-mini trades in 25 point
increments, you should expect 25 points slippage (or more) on most trades,
times two. That's one-tick slippage both in and out! This is an additional
approx $25 in costs.
Lets add this up, approx $20 to $23 in commissions per round-turn, plus
approx $25 (or even more) in round-turn slippage, plus a few dollars in
Fees. This adds up to almost exactly $50., leaving basically nothing in
net profits for you, on a decent size 100 Point move profitable trade!
The e-mini sp commissions themselves (without factoring in any other
costs) are a truly amazing 1000% greater than the old large S&P Contract
of a few years ago and 500% higher than the
commissions on the present day full-size S&P Contract.
To make this grim scenario even worse, keep in mind on a typical 100 point
loss you also need to deduct the additional approx $50 in costs. This
means your loss would be actually double! Instead of losing $50., you
really end up losing double the amount, or approx $100.
I have spoken to ZAP about this and they are unable to offer a lower rate
for the mini-sp as they said their costs are actually higher than the
regular SP Contract! ZAP said this is because the CME decided not to offer
reduced fees on the e-mini to retail brokers, apparently as a way to
placate the Floor Traders to approve the e-mini contract.
The e-mini contract and Floor Traders are not involved in the open outcry
pits trading methods, as the e-mini is traded totally electronically with
no involvement of the Floor Traders and Exchange Members. Thus they get no
income from their active participation but do get compensated as far as
their CME Exchange Membership is concerned.
What does all this mean? After heavily trading the e-mini for a couple
weeks (rather well as far as my percentage of winning trades is concerned,
at least until today - a bad trading day), including times when I was
amazingly achieving 90% wins, I have come to the sad confusion there is
simply no way to trade the e-mini sp successfully as far as the bottom
line is concerned.
This is particularly true for higher volume traders, trading in and out a
number of times per day, where the overhead and costs are a much greater
Don't cry yet! All is not lost! There is still some good news from these
sad facts! You can use the e-mini contract as a way to learn how to trade
successfully. Once you are trading it well you may then switch-over to the
regular contract or other markets and make some good profits with far less
commissions and overhead costs.
More good news, due to the amazing trade execution speed you have an
distinct advantage over having to call your broker with orders as you need
to do in other markets. Eventually, more and more markets will be traded
electronically. Some of these newly traded electronic markets will have
much better cost and commission ratios than the e-mini sp, making them
potentially much more lucrative than the e-mini sp.
In fact, this is already happening what with the new e-mini Japanese Yen
and e-mini Eurodollar FX, which just recently started trading. These
contracts are one-half of the full-size contracts, a much better ratio
than the one-fifth size E-Mini S&P. There is even a full size DMark
Contract trading electronically. However, it's volume is far too low to
trade electronically at this time, in my opinion.
We have changed our Personal Training Program (effective Nov 1st). We will
be teaching traders how to trade using the Mini S&P, where the risk is
comparatively low, but there is little possibility of much trading success
as far as net profits go, especially for very active day-traders.
After the recommended 3-week online Internet and E-Mail training sessions
we will then switch training client to the full-size S&P market or other
larger markets, where they have a real opportunity of making some money!
P.S. I sure hope I calculated all these various numbers correctly, as
these figures are tricky, at least for me! Please correct me if I made any
errors in these assumptions and calculations!
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