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Kate:
The QQQ futures, traded on the exchange now known as NQLX (formerly
Nasdaq Liffe Markets after last Thursday's decision by Nasdaq to
offload its investment to Euronext.liffe), have many advantages.
First off is the fact they are futures. Thus, you are putting up
only 20% for the security futures margin, not 50 or 100%. Second,
you have open trade equity that allows you to maintain a position,
while throwing off cash that can be invested in other positions or
investments. That assumes you are holding winning positions.
QQQ futures are marked to the market and enjoy trade day straight
through processing, not T+3 settlement. Thus, you have less
operational risk.
QQQ futures trade on Liffe Connect, considered by many to be the most
advanced futures matching engine in the world. The speed of
execution is world class. Of course you get to see all the bids and
offers and the trading is by electronic matching on a central
matching engine. With ETFs traded on multiply venues, there are more
moving parts and stastically that should indicate less reliability.
Or so I think.
QQQ futures have continuous two sided markets made by market makers
contracted by NQLX. Security futures as a whole have been slower in
growth than many, including me, predicted. In fact, the Nasdaq 100
ETF, known as the QQQs, was expected to be one of the homeruns for
NQLX. Instead the most successful contract has been the Russell 2000
ETFs on NQLX and the Diamonds on OneChicago.
The narrow participation in the QQQ futures so far presents the
chicken and the egg dilemma. What comes first? In this case, I
think that the advantages of the QQQ futures overall are valuable and
that the small cost of helping build this market by providing
liquidity in the near term will pay off in the long term.
I know that is hard to understand, as most traders are focused on the
short term, or even just their next trade. But it is important for
all of us to figure out a way to make these new markets work for us.
We will all be better off if we can build the liquidity in these very
efficient and fair electronically traded futures markets, rather than
the more cumbersome and less efficient cash markets.
And if you want to own the QQQs and you are trading in a futures
account, you can always take delivery in any securities account in
the same name as your futures account.
Regards,
John J. Lothian
Disclosure: Futures trading involves siginificant financial risk.
Security futures are not for everyone. John J. Lothian is the
President of the Electronic Trading Division of The Price Futures
Group, Inc. and publisher of the John Lothian Newsletter.
--- In realtraders@xxxxxxxxxxxxxxx, ketayun <ketayun@xxxx> wrote:
> Could someone please explain the pros-cons of trading the q's cash
vs
> futures?
>
> Thank you,
>
> Kate
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