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Russell 2000 Emini Futures

06/16/09 09:31:12 AM
by Austin Passamonte

The S&P 500 futures are the king of emini index markets. But popularity as measured by volume does not always mean superiority of profit potential. Other emini markets exist for valid reasons -- some darn good ones at that.

Security:   TF
Position:   N/A

ES futures are the most liquid, the most popular, and the most churned by black box computer programs . Using the term "efficient market" would definitely rate the ES as most efficient = least profitable to trade because of that. The ES spends more time going sideways in consolidation patterns and/or pulling back inside directional periods (back & fill) than any of the other emini index symbols. That fundamental truth is due to professional-level players working big orders with varied agendas that have nothing to do with accumulation or distribution patterns.

Hedging to offset blocks of stock, SPY shares, SPX option positions, intermarket positions such as ES/NQ spreads are all part of the intraday influence on Standard & Poor's 500 futures. It is that constant pressure on ES from both sides by myriad market players most of the day, every day, which creates persistent sideways price behavior, or "chop." Some retail traders develop strategies to take advantage of that predictable sideways behavior the ES has to a degree that no other emini index market does. There are also periods of time where the ES is directional and trending, too. Overall, it is the most congested emini symbol with the least amount of straight-line price movement on a consistent basis, for the reasons described and among others.

By far the most dynamic emini index future of all is the Russell 2000 (TF) contract. Based on small-cap stocks, it is a general market proxy and a leading indicator to where all other index markets usually head, including the S&P 500. In other words, the TF is a leading indicator for all. It has been a leading market indicator for years and will probably continue to be the ultimate broad market "tell" far into the future. More important, the TF futures contract is a highly tradable instrument itself.

In the past from inception to September 2008, it traded on the CME. Since September onward it has been listed on the NYBOT (ICE) exchange and trades apart from other emini index futures listed on the CME. That in itself is actually a benefit, which didn't seem likely at the time. Russell 2000 emini traders worried that the ER2 leaving its home base at CME in exchange for a different exchange would ruin the contract. It did result in lower volume traded, for a couple of reasons. Part of that was the usual uncertainty that any change in life creates; the other part was an absolute explosion of volatility = implosion of stock markets right when the migration from ER2/CME to TF/ICE occurred. Former ER2 players were dealt with dual variables of a new symbol/exchange inside extreme price movement through the entire marketplace. That shifted many would-be TF traders into other symbols or sidelined cash until the dust settled.

In the past, if ER2 was out of balance with ES or NQ -- that is, the tapes diverged, spread traders could short one/long the other, which would essentially rein in the ER2. That type of sideways throttling relationship no longer exists, because margins are fractional within CME products spread. In order to trade the same arb spreads between ES/TF or NQ/TF, it requires two full margins for each spread position. Further, when spreads within the CME were active and exchange went offline for trading access, it was no big deal. But spreads open across two different exchanges where one of those may go offline exposes the other open leg of that trade to unlimited potential loss. Spread traders abhor risk, which is part of why they trade spreads instead of linear positions in the first place. For those reasons and more, emini spread traders pretty much leave the cross-exchange spread arbing alone. That is one major reason why the TF is considerably smoother and more directional than other eminis -- lack of sideways arb position pressures.

Liquid enough?
TF futures are trading about half the overall volume that ER2 did before the change. The average daily volume in TF is roughly 150,000 contracts, whereas the ER2 averages somewhere around 250,000 to 300,000 contracts daily. Compared to many futures symbols, the present TF volume is substantial. For most retail traders, it offers enough liquidity to fill five to 10 contracts with no to minimal slippage. Larger orders will regularly clear as well, but partial fills on a single strike limit-order are possible during lulls in the tape intraday.

TF traders wanting to push block size orders can easily stagger contracts across several ticks' span to ensure complete fills in most instances. The bid/ask spread varies from one tick to two ticks wide, occasionally more around economic reports and other known market-moving events. With a value of $10 per tick = 10 ticks per index point, this may seem rangy. However, the fact that TF trades commonly run +4 points to +10 points from entry signal to various price objectives makes everything relative. An initial stop of -1.5 points/-$150 per contract with realistic expectations of profit exit for +5 points/+$500 per contract to +10 points/+$1,000 per contract offers an unparalleled risk/reward ratio.

Russell 2000 emini futures do have their limitations and pitfalls, and it goes without saying there is no perfect or superior all-around symbol. If there were, everybody would trade the same thing. For those of us who like trendy, directional and dynamic price action, TF Russell 2000 emini futures fits that bill to a T.

Austin Passamonte

Austin is a private trader who trades emini stock index futures intraday. He currently trades various futures markets from home in addition to managing a trader's educational forum

Title: Individual Trader
Address: PO Box 633
Naples, NY 14512
E-mail address:

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Date: 06/16/09Rank: 4Comment: 

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