• Futures are treated more favorably and receive 60/40 tax treatment
• Equities, in order to obtain more favorable tax treatment, are subject to longer holding periods (1-year).
• The difference can be substantial

• Totally electronic platform with fast, efficient fills and virtually 24-hour trading
• “Round Trip” versus in-and-out commission
• Monitoring a few key indexes vs. dozens of stocks thus eliminating traditional stock picking and associated risks such as:
  • Pre-announcements and now…..accounting minefields
• Excellent profit potential

.

• Rocket Science Factor - Options traders can call market correctly and still lose money because they must juggle 4 items:
  • underlying price
  • strike price
  • volatility
  • time decay
• Futures traders care about only 2 things:
  • an advancing market or
  • an declining market
• Futures have more constant order flow and are usually much more friendly regarding bid/offer spreads.
  .

• Bid/offer spread in SPY in 1990s: 12 - 37 cents
  Bid/offer spread in SPY in 2002: 4 - 12 cents
  
• Bid/offer spread in QQQ in 1999: 12- 50 cents
  Bid/offer spread in QQQ in 2002: 1 - 8 cents

• With some stocks, bid/offer is now a penny, since decimalization

• On some ECNs, bid/offer is “sub-penny”
  Result: Slimmer profitability
  Solution: E-mini Stock Index futures

• By design, minimum bid/offer spread is $10.00 to $12.50
  Result: Traders/Scalpers can achieve greater margins

• ETF Market Makers make bid/offer spreads based on?
• ECN bid/offers on ETFs based on?
• These various “intermediaries” base their markets on:

FUTURES PRICING!

Dozens of other specialists and market makers are able to quote attractive bid/offer spreads because of futures

• Level II screens have advantage over Level III and other systems in terms of bid/offer, inside market and dealers.

• E-minis on GLOBEX are an equal access instrument. Anyone can join the market or better the bid/offer. First In, First Out (FIFO) levels playing field.

• GLOBEX electronic platform has error trade policies and price transparency.

.

Many traders are content to just trade from the long or short side of the market.
However, spreads are unique strategies

• They add flexibility
• And allow traders to take advantage of price disparities, without having to pick the overall direction of the market.

As most market sectors headed south during the 2000-2001 correction, mid-cap and small-cap stocks outperformed by a wide margin.

• Strategy: Go long E-mini MidCap Futures and simultaneously short E-mini S&P 500 Futures.
• Trader could use E-mini Russell futures in place of E-mini MidCap Futures, if he thought small stocks would outperform.

• In general, lower risk with spreads than with outrights
• Divorce yourself from having to correctly predict market direction
• Ability to profit in up and down market
• In general, lower performance bond margins
• Cheaper than doing strategy with baskets of stocks

The information within this presentation has been compiled by Chicago Mercantile Exchange Inc. (CME) for general purposes only. Although every attempt has been made to ensure the accuracy of the information, CME assumes no responsibility for any errors or omissions. Additionally, all examples in this brochure are hypothetical situations, used for explanation purposes only, and should not be considered investment advice or the results of actual market experience.

All matters pertaining to rules and specification herein are made subject to and are superseded by official CME rules. Current CME rules should be consulted in all cases concerning contract specifications. GLOBEX® and CME® are registered trademarks of Chicago Mercantile Exchange Inc.

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