Matt Bowen
08-26-2006, 03:40 PM
***Note***
I posted this note to the e-mail subscribers of the MTP Trader Report (a newsletter I send out to subscribers each day). In any case, I thought the post would be helpful to the MTPredictor bulletin board...
I know many of you read the Van Tharp letter last night and read Van Tharp's comment about the $50,000. account being too small to trade with. If you didn't read that article here it is again:
http://www.mtptrader.com/Van1.pdf
Well, for starters...this article is over 7 years old, Van wrote this article at the time when the E-mini S&P had only been trading 15 months. So, what Van was referring to was the regular contractor (or what we call the BIG S&P contract or pit traded contract) What he is saying is true, a $50,000 dollar account was not enough to trade the "BIG S&P" contract because the margin is $20,000. per contract. (meaning you have to have $20,000 to carry the position over night).
A few things have taken place since this interview was published. First, we now have the NASDAQ, DOW and Russell 2000 futures contracts, all these contracts were not trading at the time of the interview and this is why Van is focusing on the BIG S&P contract. Second, as you can see from the chart below back in 1999 the E-mini Futures were not even trading 50,000 contracts per day and therefore were not even on the radar for most traders. So it's only natural that Van Tharp is going to tell you a $50,000. trading account was too small to trade the S&P 500 futures.
http://www.mtptrader.com/Margin1.gif
So it's only natural that Van Tharp is going to tell you a $50,000. trading account was too small to trade the S&P 500 futures.The point I'm trying to make here is that unless you have been trading for awhile you might not read this article with the correct understanding...so I wanted to clear that up. I had a few e-mails waiting for me this morning saying, why does he say a $50,000. account is too small?
If you understand margin the picture below will help explain the difference as well. Notice the Green line on the chart below is the S&P 500 e-mini futures contract, the initial margin (to carry overnight is $3938.00) this is the cost to trade it overnight. Now look where it says: DAY = $500.00 this is the cost to day trade the S&P e-mini futures or what they call day trading margins (as long as you buy it and sell in during the same day you can significantly reduce your margins even further...and this is why it's so appealing to day traders who have small trading accounts less than $20,000.00
Now, take a look at the Yellow line, this is the BIG S&P 500 contract. Notice the initial margin is $19,688.00 to carry the contract overnight and if you just want to day trade it you have to have $9,844.00 (that's just to day trade 1 contract). I hope you can now understand why Van Tharp was telling the readers why $50,000.00 was a small account and he's right, if you are going to trade the BIG S&P you need a lot more money than what an E-mini trader needs.
http://www.mtptrader.com/Margin.gif
I should also mention that the there is a big difference in liquidity between the E-mini S&P and the Big S&P contract:
Volume of contracts traded on Friday August 25, 2006
E-mini S&P 500 = 1,515,422 contracts (1.5 million)
BIG S&P 500 or (PIT traded) = 585,300 (585 thousand)
As you can see the E-mini has continued to increase trading volume and is trading almost 3 times as much as the larger "big brother" contract.
I hope this e-mail has cleared up any misinterpretation from some readers. I should have taken the time to clear up this question before and It just goes to show me how many people read these e-mails, but more importantly understand the material.
Also, for those of you who would like to see more information on on trading the e-minis you can click on this page below that is an education page for new e-mini traders: http://www.mtptrader.com/showthread.php?t=360&highlight=e-mini
I posted this note to the e-mail subscribers of the MTP Trader Report (a newsletter I send out to subscribers each day). In any case, I thought the post would be helpful to the MTPredictor bulletin board...
I know many of you read the Van Tharp letter last night and read Van Tharp's comment about the $50,000. account being too small to trade with. If you didn't read that article here it is again:
http://www.mtptrader.com/Van1.pdf
Well, for starters...this article is over 7 years old, Van wrote this article at the time when the E-mini S&P had only been trading 15 months. So, what Van was referring to was the regular contractor (or what we call the BIG S&P contract or pit traded contract) What he is saying is true, a $50,000 dollar account was not enough to trade the "BIG S&P" contract because the margin is $20,000. per contract. (meaning you have to have $20,000 to carry the position over night).
A few things have taken place since this interview was published. First, we now have the NASDAQ, DOW and Russell 2000 futures contracts, all these contracts were not trading at the time of the interview and this is why Van is focusing on the BIG S&P contract. Second, as you can see from the chart below back in 1999 the E-mini Futures were not even trading 50,000 contracts per day and therefore were not even on the radar for most traders. So it's only natural that Van Tharp is going to tell you a $50,000. trading account was too small to trade the S&P 500 futures.
http://www.mtptrader.com/Margin1.gif
So it's only natural that Van Tharp is going to tell you a $50,000. trading account was too small to trade the S&P 500 futures.The point I'm trying to make here is that unless you have been trading for awhile you might not read this article with the correct understanding...so I wanted to clear that up. I had a few e-mails waiting for me this morning saying, why does he say a $50,000. account is too small?
If you understand margin the picture below will help explain the difference as well. Notice the Green line on the chart below is the S&P 500 e-mini futures contract, the initial margin (to carry overnight is $3938.00) this is the cost to trade it overnight. Now look where it says: DAY = $500.00 this is the cost to day trade the S&P e-mini futures or what they call day trading margins (as long as you buy it and sell in during the same day you can significantly reduce your margins even further...and this is why it's so appealing to day traders who have small trading accounts less than $20,000.00
Now, take a look at the Yellow line, this is the BIG S&P 500 contract. Notice the initial margin is $19,688.00 to carry the contract overnight and if you just want to day trade it you have to have $9,844.00 (that's just to day trade 1 contract). I hope you can now understand why Van Tharp was telling the readers why $50,000.00 was a small account and he's right, if you are going to trade the BIG S&P you need a lot more money than what an E-mini trader needs.
http://www.mtptrader.com/Margin.gif
I should also mention that the there is a big difference in liquidity between the E-mini S&P and the Big S&P contract:
Volume of contracts traded on Friday August 25, 2006
E-mini S&P 500 = 1,515,422 contracts (1.5 million)
BIG S&P 500 or (PIT traded) = 585,300 (585 thousand)
As you can see the E-mini has continued to increase trading volume and is trading almost 3 times as much as the larger "big brother" contract.
I hope this e-mail has cleared up any misinterpretation from some readers. I should have taken the time to clear up this question before and It just goes to show me how many people read these e-mails, but more importantly understand the material.
Also, for those of you who would like to see more information on on trading the e-minis you can click on this page below that is an education page for new e-mini traders: http://www.mtptrader.com/showthread.php?t=360&highlight=e-mini