TCA tool: Cost Efficiencies between Nasdaq-100 futures and ETF

TCA Tool: Cost Efficiencies for Nasdaq-100 Futures and ETFs

FACTOID: While ETF management fees have generally decreased for many of the larger ETFs such as SPY, the costs to trade futures has shown to be significantly less than ETFs. It is thus no surprise that the Nasdaq-100 futures out-trade in daily dollar notional terms its ETF counterpart, the QQQ.

– Source Bloomberg

The introduction of futures and ETFs on the Nasdaq-100 Index met with extraordinary success. Both launched in 1999, as the technology stock rally was gaining momentum. Pension funds, money managers, hedge funds and active retail traders quickly adopted the new contracts and they are now some of the most liquid products traded. But replicating stock indices like the Nasdaq-100 using futures or ETFs is not always a cut and dry decision.

All-In Costs

Determining the all-in costs of the two products requires more detailed analysis. Different users have different strategic uses for the products and thus no one size fits all exists when it comes to determining which is the better or more cost-efficient vehicle. The only way to determine the most cost-efficient instrument for a particular user, is to do a detailed analysis that considers various scenarios such as holding periods, size of trade, market impact, transaction costs, etc. that are unique to the investor’s situation.

To this end, CME Group has put together a variety of content to help the investor determine the best option. In addition to several papers on the topic, CME Group developed the Total Cost Analysis Tool (TCA), which allows analysis of many CME Group stock index futures and their corresponding ETF. For this module, we will focus on the E-mini Nasdaq-100 and the Nasdaq-100 ETF (Ticker: QQQ).

The TCA tool is offered for free and can be accessed at our website: cmegroup.com/equities.