|
PureBytes Links
Trading Reference Links
|
Bob Fulks wrote :
> The spread is about the same in dollars for a typical order.
>
> For your S&P example, "It's normally 1100 bid 1100.10 ask", the spread on
> one contract is 0.10 x 1000 = $100.
>
> For your stock example, "15 bid - 15 1/8 ask", on a trade of 1000 shares
it
> is 0.125 x 1000 = $125.
>
> Bob Fulks
>
Hi Bob -
You are correct in your info. Let's looks at it a different way......
Bear in mind that you picked an arbitrary 1000 shares of stock to equal
$125.
However, if you look at the total value you are "buying", about $14,000
controls you $275,000 of S&P 500 "stock" .
For the same comparison, you would need 18,333 shares of the $15
stock....thus, your 1/8 point spread would now cost you 18,333 shares X
.125 = $2,291 !
IE, The SPREAD cost to leverage $275,000 of stock costs $100 in futures,
while costing $2,291 in this $15 stock....and this is REAL money out of
your pocket, on each trade, taken in by the market maker or floor trader.
Put another way:
In order to profit from an identical market move the $15 stock will cost
you $2,291 spread vs: only $100 to *BOTH* enter and exit the market.
Actually, if we use 50% margin on the stock spread expenses get reduced by
1/2, though there is then margin interest to contend with.
Where ARE the customer's yachts, anyway?
Tom Cathey
|