S&P 500 ETF vs. S&P 500 Futures (SPY vs. ES)

Contributor Image
Written By
Contributor Image
Written By
Dan Buckley
Dan Buckley is an US-based trader, consultant, and part-time writer with a background in macroeconomics and mathematical finance. He trades and writes about a variety of asset classes, including equities, fixed income, commodities, currencies, and interest rates. As a writer, his goal is to explain trading and finance concepts in levels of detail that could appeal to a range of audiences, from novice traders to those with more experienced backgrounds.

The S&P 500 ETF (SPY) and S&P 500 Futures (ES) are two popular financial instruments.

Both derive their value from the S&P 500 index, yet they differ a lot in terms of structure, trading characteristics, and their use in trading/investment strategies.


Key Takeaways – S&P 500 ETF vs. S&P 500 Futures (SPY vs. ES)

  • Liquidity and Market Access
    • SPY ETF offers high liquidity and accessibility.
    • S&P 500 Futures (ES) are favored in institutional trading for their around-the-clock market access.
  • Tax and Leverage Differences
    • Futures offer potential tax advantages and higher leverage, which makes them efficient for short-term and speculative strategies, unlike ETFs which are more suited for long-term investment.
  • Settlement Mechanisms
    • SPY settles in shares, offering direct exposure to the S&P 500 index.
    • ES futures settle in cash, which provides a different risk and operational profile for traders/investors.


Overview of S&P 500 ETF (SPY)

The S&P 500 ETF, commonly known by its ticker SPY, is an exchange-traded fund that tracks the S&P 500 index.

It represents a shareable portfolio containing stocks of the companies included in the index.

Trading Hours

SPY trades during regular market hours, similar to stocks.


SPY is a pooled investment fund, and each share represents a proportional stake in the underlying basket of stocks.


SPY is known for high liquidity, making it easy to buy and sell without significant price impact.


Holders of SPY receive dividends, reflecting the dividend payments from the companies in the index.

Tax Efficiency

SPY offers tax efficiency through the creation/redemption mechanism that minimizes capital gains distributions.


SPY settles in shares.


Overview of S&P 500 Futures (ES)

S&P 500 Futures, or ES, are derivative contracts that obligate the buyer to purchase, and the seller to sell, the underlying S&P 500 index at a predetermined future date and price.

Trading Hours

ES trades almost 24 hours a day, providing more flexibility for global traders.


ES is a contract, not a share, and its value derives from the expected future price of the S&P 500 index.


ES offers leverage, meaning traders can control large positions with a relatively small amount of capital.


ES contracts are settled daily, and the final settlement is in cash, not in actual shares.

Margin Requirements

Trading ES requires maintaining a margin account.

This ensures traders have enough funds to cover potential losses.


Comparison of SPY & ES

Understanding the differences between SPY and ES is crucial for investors and traders to align their strategies with their financial goals, risk tolerance, and trading style.

Trading Hours and Accessibility

  • SPY trades during regular market hours.
    • Limits access outside these times (available 9 AM – 4 PM EST Monday-Friday, with extended hours (4 AM – 8 PM EST Monday-Friday) available for some).
    • Has liquid options markets, with daily expiries.
  • ES offers nearly 24-hour trading.
    • Accommodates various trading strategies and time zones.
    • Has an options market, but is less liquid and lacks the same diversity of expiries.

Investment and Trading Strategies

  • SPY suits long-term investors seeking equity exposure, dividend income, and tax efficiency.
  • ES appeals to active traders due to its leverage, flexibility in trading hours, and suitability for short-term speculative strategies or hedging.

Costs and Expenses

  • SPY incurs expense ratios and brokerage fees, though generally low due to its passive management.
  • ES involves trading commissions, margin requirements, and potentially overnight funding charges for held positions.

Risk and Leverage

  • SPY offers a straightforward investment or trading vehicle in the stock market without inherent leverage. Aligns with the actual value of the underlying stocks.
  • ES provides leverage, amplifying both potential gains and losses.
    • Requires careful risk management and understanding of margin requirements.


Alternatives to SPY and ES

Alternatives to SPY (S&P 500 ETF) and ES (S&P 500 Futures) include other ETFs, index funds, and derivative contracts that offer varied exposure to the stock market.

These alternatives cater to various investment strategies, risk tolerances, and capital allocations.

Total Market ETFs (e.g., VTI)

Track the broader market, not limited to S&P 500 companies.

Many Vanguard ETFs are known for their low expense ratios (which is the most important consideration for a lot of people).

Sector-Specific ETFs (e.g., XLF for financials, XLK for technology)

Provide exposure to specific sectors within or beyond the S&P 500.

International ETFs (e.g., VEU, VXUS)

Offer diversification by investing in stocks outside the US.

Mutual Funds (e.g., VFINX for Vanguard 500 Index Fund)

Provide similar exposure to SPY but with different management styles and fee structures.

Options on SPY

Allow traders/investors to speculate or hedge against movements in the S&P 500 with potentially lower capital outlay.

Micro E-mini S&P 500 Futures (MES)

Offer a smaller contract size compared to standard ES. This reduces the capital requirement and risk exposure.

Inverse ETFs (e.g., SH)

Designed to perform inversely to the S&P 500.

Suitable for hedging or speculative strategies anticipating market downturns.

But best suited for day trading and intra-day holding only due to tracking error.


Conclusion – SPY vs. ES

Both SPY and ES serve specific needs in the financial markets.

SPY caters to investors seeking a passive, long-term investment mirroring the performance of the S&P 500 or traders looking for a highly liquid security trading the S&P 500.

In contrast, ES offers active traders a tool for speculation, hedging, or capitalizing on market movements across extended trading hours.

ES also appeals heavily to those looking to leverage exposure to the S&P 500.

The choice between SPY and ES should be guided by an individual’s investment goals, risk tolerance, and trading strategy.