Fascinating Volume and Open Interest Relationship in Emini S&P

As of friday’s close, emini S&P has an estimated daily volume of 3,251,000 (more than 3 million), with prior open interest stands at 2,350,000 (more than 2 million).

Think about the ratio. The daily turnover is more than the commited overnight positions by 30%. And the daily average volume to open interest ratio has been at least 100% for a long time already. That means, most of the liquidity we have seen are purely daytrading activities.

Overnight Positions

Now think about the actual value. Emini S&P trade at USD $50 per point movement. That means, when you see ES move from 1240 to 1239, a single contract drops by $50 in its value. With 2 million plus contracts at stake for the overnight positions, we are talking about $100,000,000 (100 million dollars) fluctuation per point movement.

And taking that one step further, the average daily range of emini S&P stands at 20 points in the current months, and for the past week, more than 30 points a day. Those overnight positions we are talking about fluctuate at least $2,000,000,000 (2 billion dollars) a day.

Remember that for every contract in the open interest, there is a buyer and a seller. When so much money is involved in betting the direction of the overall market, one has to wonder who these buyers and sellers are.

Daytrading Activities

With many brokerages offering $500 margin (per contract) for daytraders, how does someone properly manage the risk they are taking?

At 20 points daily range, the actual value of a single emini S&P contract fluctuates $1,000 per day. That is 200% the margin requirement.

In the past week, we are talking about 300%.

I can imagine that the brokerages have mark to market, tick by tick monitoring on the daytraders open positions. Anytime, if someone is under margin, those positions will be liquidated at once. For example, someone having $800 in the account and buy one emini S&P contract at the price of 1410, the very second the contract trade at or below 1404, the position would be liquidated by the brokerage.

As a beginner learning to trade emini S&P, the lower margin can definitely help reducing the entrance cost. However, if the lower margin is not utilized properly, an account can be wiped out much faster.

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