Trading NQ and SP500 vs the Dow | Forex Factory

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Trading NQ and SP500 vs the Dow

  • #1
  • First Post: Sep 17, 2017 12:58pm Sep 17, 2017 12:58pm
Among the US indices I see most people prefer to trade NQ or SP500 rather than the Dow. Is there any reason why NQ and SP500 are preferred over the Dow?
  • #2
  • Sep 17, 2017 3:05pm Sep 17, 2017 3:05pm
Nasdaq has all the cool tech and biomed companies...

SP500 corelates with oil more...
  • #3
  • Sep 17, 2017 11:29pm Sep 17, 2017 11:29pm
SP500 is the most traded index futures, but Nasdaq is more volatile than SP500. I think at the end of the day, you probably need to look at it from your risk/money management point of view. 1 pt move in Nasdaq equals $20, 1 pt move in SP500 equals $50, 1 pt move in Dow equals $5. All of them correlate with each other, when one is going up, the others will very likely follow suit too.
  • #4
  • Sep 18, 2017 1:14am Sep 18, 2017 1:14am
Institutions trade the ES mostly, because it tends to represent the broader market more than the NQ and YM, and is most liquid.

Smaller traders tend to pay attention to some of the following factors. Below are approximate numbers for demonstration purposes.
If a trader believes higher daily volume offers more liquidity for the futures contract, here are some approximate ratios -- ES:NQ:YM is 10 : 2 : 1.
If a trader wants to be more commission cost efficient per tick, the minimum movement tick values are -- ES:NQ:YM is $12.50 : $5.00 : $5.00.
If a trader is concerned about the spread, the minimum is -- ES:NQ:YM = 1 point : 1 point : 1 points = $12.50 : $5.00 : $5.00.
If a traders looks at ATR for price movement -- ES:NQ:YM is about 15 points :56 points : 112 points = $750 : $1120 : $560.
If a trader is concerned about exchange margin -- ES:NQ:YM is $4,500 : $4,500 : $2,750. Your broker may offer lower day-trade margins.
In addition, ES and NQ are with CME, while YM is with CBOT. Depending on your broker, the margin requirements for intra-exchange arbitrage or hedging may be more beneficial than inter-exchanges.
If a trader wants to look at potential return (volatility) on investments (margin), a bang for the buck so to speak, may consider the average daily range divided by the margin requirement per contract. You can do the math yourself, and do your own evaluation.

Then there is the factor of how familiar and comfortable the trader is with each market. For example, YM has only 30 components in the index. Let's say Goldman Sacks (one of the members in Dow Jones) makes a big move one day, it is going to affect YM more than ES and NQ.

I am sure there are other important factors traders look at. Please also post.

Note: Many of the above ratios are not static. They do change over time, even the exchange margins.
  • #5
  • Sep 18, 2017 8:57am Sep 18, 2017 8:57am
Thank you so much for this detailed reply calaxcorp. I currently trade NQ and YM on CFD since risking $5 a point is too much for me. I will eventually move to the futures market once I feel comfortable with the risk. I have noticed that ES is least volatile and I like a bit more volatility. That's why I chose NQ and YM. The only down side to them is that they are very correlated. Because of that, is it better to just stick to 1 of the 2 for day trading? I know this question is very person dependent but I would like to hear some opinions.

Also in general how do you trade closely correlated instruments? Is it usually better to avoid them because you may get bias from one instrument and that will influence your decision making on the other? Or maybe you can use the correlation to find out which one is likely to produce a better movement.
  • #6
  • Sep 18, 2017 12:53pm Sep 18, 2017 12:53pm
I trade nq it trends better than any market including any pair in forex
  • #7
  • Sep 19, 2017 8:53pm Sep 19, 2017 8:53pm
Quoting trickshady
I currently trade NQ and YM on CFD since risking $5 a point is too much for me. I will eventually move to the futures market once I feel comfortable with the risk.
You said you day trade. If you are in the US, there are brokers who offer day trade margins for as low as $500 a futures contract. But I don't know about trading outside the US, and you probably are since you mentioned CFD. For risk control, you can also set stop loss depending on your trading style.

Quoting trickshady
... I chose NQ and YM. The only down side to them is that they are very correlated. Because of that, is it better to just stick to 1 of the 2 for day trading? I know this question is very person dependent but I would like to hear some opinions. Also in general how do you trade closely correlated instruments? Is it usually better to avoid them because you may get bias from one instrument and that will influence your decision making on the other? Or maybe you can use the correlation to find out which one is likely to produce a better movement.
One does not have to trade both highly correlated instruments at the same time (compounding the risk) unless you arbitrage. Avoiding them? As a matter of fact, I take advantage of such correlation. My trading charting platform allows me to create/plot an indicator wherein I divide one instrument price by the other; such indicator curve plot is unusually (not always) much smoother than price alone, and tells me the likely trend for the market to continue or end.

If looking at both NQ and YM tends to give bias and confusion, then simply look at one and ignore the other. I agree with what Divergence just said ... NQ trends better. And I ignore YM.
  • #8
  • Sep 19, 2017 10:40pm Sep 19, 2017 10:40pm
I am in the US but I use offshore broker for CFD. Can you tell me which US futures broker allows such low margins and how much is a tick worth?

You are so right about bias and confusion. Today I decided to drop YM and go with NQ. NQ and GC have no correlation so they are really good to day trade at the same time.
  • #9
  • Sep 20, 2017 11:50am Sep 20, 2017 11:50am
Quoting trickshady
I am in the US but I use offshore broker for CFD. Can you tell me which US futures broker allows such low margins and how much is a tick worth?
A Google search with the key words should show at least a few of them. And the tick values are in the exchange website pages.
Good trading to you.
  • #10
  • Sep 20, 2017 1:12pm Sep 20, 2017 1:12pm
I found brokers with low day trading margins but that isn't actually the problem. My problem is the value per tick. A futures contract is $5 a tick on the NQ. I'm looking for $1 a tick and less which would be 1/5 or less of a contract. Is that even possible?
  • #11
  • Sep 20, 2017 3:59pm Sep 20, 2017 3:59pm
Quoting trickshady
I found brokers with low day trading margins but that isn't actually the problem. My problem is the value per tick. A futures contract is $5 a tick on the NQ. I'm looking for $1 a tick and less which would be 1/5 or less of a contract. Is that even possible?
You can day-trade ETFs (that will mirror NQ, ES, YM) where you can trade any # of shares to get the $/tick you want. Commissions will be slightly more than $1/trade.
The problem is you need to keep $25,000 minimum in the account @ all times. Stupid rule but they'll freeze your account if you don't. I know because I've done it.

Trading CFDs in the US isn't allowed unless you can find an offshore broker that doesn't enforce the rule.
  • #12
  • Last Post: Sep 20, 2017 5:39pm Sep 20, 2017 5:39pm
My offshore broker lets me trade CFDs. Looks like I'll be doing that till I feel comfortable with the futures contracts risk. I hate how the barrier to enter the futures market (very high minimum risk) or day trading stocks (high deposit) is so high. You pretty much need to have already mastered trading before you can start trading. Well how do you do that when you can't even get started lol. That's why most people start with forex which is the hardest market of them all.
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