Which mini equity futures contract is best?


Over the weekend I received from a trader what I feel like is really a three-part inquiry. Rather than create one long multi-subject post, I’m going to split the questions out into three seperate posts to focus on each subject. Here’s the first part.

I am trying to build my trading plan, and I feel I would be comfortable trading index mini futures. I would have to choose among ES, YM and NQ. Which would be more advisable, with an initial account size of $50,000?

With an account of this size, really any of the mini futures are perfectly reasonable. The S&Ps (ES) are by far the most actively traded and liquid. There’s somewhere around 3 million contracts worth of open interest in the mini S&Ps, whereas the mini NASDAQ is more like 400,000.

Liquidity and such aside, it’s important to understand the difference between what the three contracts represent. The YM is the Dow, which is a 30 stocks index of so-called industrial companies. That’s going to generally be a pretty cyclical group. The ES obviously is for the S&P 500, which is meant to be the 500 highest market cap value companies. That is going to be a group which is generally going to do a pretty good job of tracking general economic conditions. Meanwhile, the NASDAQ futures are focused on the often more volatile tech sector.

The point is that each index has a different characteristic. You may find one suits your particular trading style better than the others. It’s worth experimenting.

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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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  • http://billakanodoodahs.com Bill aka NO DooDahs!

    I would have thought the best response would have been another question, i.e. what style of trading do you do?

    400K Nas minis is what, $24 BILLION in open interest? What does a trader with only $50K to trade care about liquidity past that?

    For a retail trader, unless they’re scalping at huge leverage ratios, liquidity isn’t really an issue.

    Speaking of leverage, it would have been nice to touch on the implied leverage of each contract at retail minimum overnight margins. I assume they’re all close enough to 12:1 at current that it doesn’t make a difference, but that is a far more pressing short-term trader’s concern than whether the index is tech, industrial, or broad-based.

    Average daily volatility (as a percentage of market move) is probably a HUGE concern for day traders, with more being merrier. Historically the Dow is more volatile than the S&P but I haven’t compared the Nasdaq contract to those.

    Probably the biggest question is “which index responds best to your style of trading?” That index is the best one to trade …

  • http://www.theessentialsoftrading.com John

    Bill – You’ll see in the next post or two why I didn’t bring up the scalping and such, and at $50k margins aren’t really much of a factor either. It does all bring things down to your last comment/question and mine regarding matching index to style.

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