Futures and ETFs: Myths versus Facts

Because there are so many different types of investors and potential uses for both exchange-traded funds (ETFs) and futures, the choice between the two is not an either-or decision. It can be hard to separate fact from fiction when trying to determine which trading instrument to use. This page is designed to help you distinguish myths from facts when making your trading decisions.

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Myth: ETFs are cheaper than futures.

Fact: Futures are more cost-effective for most investors.

It is often cheaper to replicate the S&P 500 with futures than with ETFs. Futures offer lower transaction costs, holding costs and margin than ETFs, and futures still offer a better return when looking at the average roll cost over the past two years in the majority of investment scenarios.

See whether ETFs or futures will more effectively meet your needs with CME Group’s free interactive Total Cost Analysis tool.

Myth: New banking regulations are driving up the roll cost of futures.

Fact: The roll cost has both fallen and risen since major regulations such as Basel III were enacted.

The cost to renew or roll futures contracts rose in early 2015 when new banking regulations went into effect, but roll costs fell in 2016, and rose in 2017, proving there is no correlation. Furthermore, because futures markets are open virtually 24 hours a day, seven days a week, futures are a more effective and flexible tool for hedging against market risks like regulatory uncertainty.

Myth: ETFs are growing faster than futures.

Fact: ETFs are growing – but not faster than futures and not at the expense of futures.

ETF growth does not come at the expense of futures. ETFs still comprise a relatively small part of the investment universe. Investors traded a record 15.6 million futures contracts every day at CME Group in 2016, the highest average daily volume in the exchange’s nearly 200-year history. E-mini S&P 500 futures at CME Group trade 10 times more per day than all S&P 500 ETFs combined.

In addition, some studies claiming ETFs are growing more quickly than futures rely on data that include passive investors like 401(k) funds, which grow along with the broader U.S. economy. This does not paint an accurate picture of how active investors are behaving.

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