Why don't SPY, SPX, and the e-mini s&p 500 track perfectly with each other?
"I thought the other answers had some good aspect but also some things that might not be completely correct, so I'll take a shot. As noted by others, there are three different types of entities in your question:  The ETF SPY, the index SPX, and options contracts. First, let's deal with the options contracts.  You can buy options on the ETF SPY or marked to the index SPX.  Either way, options are about the price of the ETF / index at some future date, so the local min and max of the ""underlying"" symbol generally will not coincide with the min and max of the options.  Of course, the closer the expiration date on the option, the more closely the option price tracks its underlying directly.  Beyond the difference in how they are priced, the options market has different liquidity, and so it may not be able to track quick moves in the underlying. (Although there's a reasonably robust market for option on SPY and SPX specifically.) Second, let's ask what forces really make SPY and SPX move together as much as they do.  It's one thing to say ""SPY is tied to SPX,"" but how?  There are several answers to this, but I'll argue that the most important factor is that there's a notion of ""authorized participants"" who are players in the market who can ""create"" shares of SPY at will.  They do this by accumulating stock in the constituent companies and turning them into the market maker.  There's also the corresponding notion of ""redemption"" by which an authorized participant will turn in a share of SPY to get stock in the constituent companies. (See http://www.spdrsmobile.com/content/how-etfs-are-created-and-redeemed and http://www.etf.com/etf-education-center/7540-what-is-the-etf-creationredemption-mechanism.html) Meanwhile, SPX is just computed from the prices of the constituent companies, so it's got no market forces directly on it.  It just reflects what the prices of the companies in the index are doing. (Of course those companies are subject to market forces.) Key point: Creation / redemption is the real driver for keeping the price aligned.  If it gets too far out of line, then it creates an arbitrage opportunity for an authorized participant.  If the price of SPY gets ""too high"" compared to SPX (and therefore the constituent stocks), an authorized participant can simultaneously sell short SPY shares and buy the constituent companies' stocks.  They can then use the redemption process to close their position at no risk.  And vice versa if SPY gets ""too low."" Now that we understand why they move together, why don't they move together perfectly.  To some extent information about fees, slight differences in composition between SPY and SPX over time, etc. do play.  The bigger reasons are probably that (a) there are not a lot of authorized participants, (b) there are a relatively large number of companies represented in SPY, so there's some actual cost and risk involved in trying to quickly buy/sell the full set to capture the theoretical arbitrage that I described, and (c) redemption / creation units only come in pretty big blocks, which complicates the issues under point b. You asked about dividends, so let me comment briefly on that too.  The dividend on SPY is (more or less) passing on the dividends from the constituent companies. (I think - not completely sure - that the market maker deducts its fees from this cash, so it's not a direct pass through.)  But each company pays on its own schedule and SPY does not make a payment every time, so it's holding a corresponding amount of cash between its dividend payments.  This is factored into the price through the creation / redemption process.  I don't know how big of a factor it is though." As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index: "The S&P 500 is an index. This refers to a specific collection of securities which is held in perfect proportion. The dollar value of an index is scaled arbitrarily and is based off of an arbitrary starting price. (Side note: this is why an index never has a ""split""). Lets look at what assumptions are included in the pricing of an index: All securities are held in perfect proportion. This means that if you invest $100 in the index you will receive 0.2746 shares of IBM, 0.000478 shares of General Motors, etc. Also, if a security is added/dropped from the list, you are immediately rebalancing the remaining money. Zero commissions are charged. When the index is calculated, they are using the current price (last trade) of the underlying securities, they are not actually purchasing them. Therefore it assumes that securities may be purchased without commission or other liquidity costs. Also closely related is the following. The current price has full liquidity. If the last quoted price is $20 for a security, the index assumes that you can purchase an arbitrary amount of the security at that price with a counterparty that is willing to trade. Dividends are distributed immediately. If you own 500 equities, and most distributed dividends quarterly, this means you will receive on average 4 dividends per day. Management is free. All equities can be purchased with zero research and administrative costs. There is no gains tax. Trading required by the assumptions above would change your holdings constantly and you are exempt from short-term or long-term capital gains taxes. Each one of these assumptions is, of course, invalid. And the fund which endeavors to track the index must make several decisions in how to closely track the index while avoiding the problems (costs) caused by the assumptions. These are shortcuts or ""approximations"". Each shortcut leads to performance which does not exactly match the index. Management fees. Fees are charged to the investor as load, annual fees and/or redemptions. Securities are purchased at real prices. If Facebook were removed from the S&P 500 overnight tonight, the fund would sell its shares at the price buyers are bidding the next market day at 09:30. This could be significantly different than the price today, which the index records. Securities are purchased in blocks. Rather than buying 0.000478 shares of General Motors each time someone invests a dollar, they wait for a few people and then buy a full share or a round lot. Securities are substituted. With lots of analysis, it may be determined that two stocks move in tandem. The fund may purchase two shares of General Motors rather than one of General Motors and Ford. This halves transaction costs. Debt is used. As part of substitution, equities may be replaced by options. Option pricing shows that ownership of options is equivalent to holding an amount of debt. Other forms of leverage may also be employed to achieve desired market exposure. See also: beta.  Dividends are bundled. VFINX, the largest S&P 500 tracking fund, pays dividends quarterly rather than immediately as earned. The dividend money which is not paid to you is either deployed to buy other securities or put into a sinking fund for payment. There are many reasons why you can't get the actual performance quoted in an index. And for other more exotic indices, like VIX the volatility index, even more so. The best you can do is work with someone that has a good reputation and measure their performance." As a futures trader, I can tell you that the highs and lows for the ES futures diverge simply because they trade around the clock, from 6PM ET to 5PM ET the next day. The SPX is only open during market hours, as is the SPY, but the SPY also trades in the extended hours sessions for about 3.5 hours before and after the regular hours of 930 AM ET to 4PM ET ET. So bottom line, while they pretty much track each other, the difference in their trading hours results in the highs and lows being different. What you should compare is SPX, SPY NAV, and ES fair value.   Like others have said is SPX is the index that others attempt to track. SPY tracks it, but it can get a tiny bit out of line as explained here by @Brick .  That's why they publish NAV or net asset value.  It's what the price should be.  For SPY this will be very close because of all the participants.  The MER is a factor, but more important is something called tracking error, which takes into account MER plus things like trading expenses plus revenue from securities lending.  SPY (the few times I've checked) has a smaller tracking error than the MER.  It's not much of a factor in pricing differences. ES is the price you'll pay today to get SPX delivered in the future (but settled in cash).  You have to take into account dividends and interest, this is called fair value.  You can find this usually every morning so you can compare what the futures are saying about the underlying index. http://www.cnbc.com/pre-markets/ The most likely difference is you're looking at different times of the day or different open/close calculations.
The two answers given previously provide excellent information. In relation to your statement: If I buy the above future contract, does that mean I pay $1581.90 on June 13th You cannot buy the futures contract at that price. The 'price' you are seeing quoted is not a dollar value, but rather a value in points. Each contract has a point value, and this varies from one contract to another according to the specifications set out by the exchange. The point value is in dollars, and it therefore acts as a multiplier for the 'price' that you've seen quoted. Let's look at an example for the E-Mini S&P futures. These trade electronically on the Globex exchange, the ECN order book of the CME, and carry the ticker symbol ES.  The ES contract has a point value of $50. If the quoted price for the ES is 1581.75, then its dollar value is 50 x 1581.75 = $79,087.50 So in order to buy this contract outright, with absolutely no use of leverage, then one theoretically requires $79,087 in one's account. In practice though, futures are traded on margin and so only a deposit amount is required at the time of purchase, as CQM has explained. Why not figure out the % composition   of the index and invest in the   participating securities directly? This isn't really practical.   Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity. Now, if I'm not mistaken, tracking a value-weighted index is extremely easy - just buy the shares in the exact amount they are in the index and wait. Yes in theory. In practise this is difficult. Most funds that track S&P do it on sample basis. This is to maintain the fund size. Although I don't have / know the exact number ... if one wants to replicate the 500 stocks in the same %, one would need close to billion in fund size. As funds are not this large, there are various strategies adopted, including sampling of companies [i.e. don't buy all]; select a set of companies that mimic the S&P behaviour, etc. All these strategies result in tracking errors. There are algorithms to reduce this. The only time you would need to rebalance your holdings is when there is a change in the index, i.e. a company is dropped and a new one is added, right? So essentially rebalance is done to; If so, why do passive ETFs require frequent rebalancing and generally lose to their benchmark index? lets take an Index with just 3 companies, with below price. The total Market cap is 1000  The Minimum required to mimic this index is 200 or Multiples of 200. If so you are fine.    More Often, funds can't be this large. For example approx 100 funds track the S&P Index. Together they hold around 8-10% of Market Cap. Few large funds like Vangaurd, etc may hold around 2%. But most of the 100+ S&P funds hold something in 0.1 to 0.5 range. So lets say a fund only has 100. To maintain same proportion it has to buy shares in fraction. But it can only buy shares in whole numbers. This would then force the fund manager to allocate out of proportion, some may remain cash, etc. As you can see below illustrative, there is a tracking error. The fund is not truly able to mimic the index.  Now lets say after 1st April, the share price moved, now this would mean more tracking error if no action is taken [block 2] ... and less tracking error if one share of company B is sold and one share of company C is purchased.  Again the above is a very simplified view. Tracking error computation is involved mathematics.  Now that we have the basic concepts, more often funds tracking S&P; Thus they need to rebalance. Today SPY (The S&P ETF) trades at $128. The option to buy at $140 (this is a Jan '13 call) trades for $5.  I buy the call, for $500 as they trade in 100 lots.  The S&P skyrockets to 1500 and SPY to $150. The call trades for $11, as it still has a month or two before expiring, so I sell it, and get $1100. The S&P rose 17%, but I doubled my money. If it 'only' rose 9%, to less than $140, I'd lose my investment. No, I don't need to buy the SPY I can sell the call any time before expiration. In fact, most options are not exercised, they are sold between purchase and expiration date. Willis Group Holdings Set to Join the S&P 500; Fossil Group to Join S&P MidCap 400; Adeptus Health to Join S&P SmallCap 600 notes in part for the S & P case: Willis Group Holdings plc (NYSE:WSH) will replace Fossil Group Inc.   (NASD:FOSL) in the S&P 500, and Fossil Group will replace Towers   Watson & Co. (NASD:TW) in the S&P MidCap 400 after the close of   trading on Monday, January 4. Willis Group is merging with Towers   Watson in a deal expected to be completed on or about that date   pending final conditions. Post merger, Willis Group Holdings will   change its name to Willis Towers Watson plc and trade under the ticker   symbol “WLTW”. Fossil has a market capitalization that is more   representative of the midcap market space. As of Jan. 8, Fossil is about $1.44B in market cap and Willis is $21.02B for those wondering. Apple with a market cap of $540.58B is 3.26% of the index making the entire index worth approximately $16,582.21B, so Fossil is worth .00868% of the overall index for those wanting some numbers here. Thus, if a company acquires another and becomes bigger than there can be replacements made in those indices that have an artificial number of small members. Alternatively, a member may be removed for lack of representation where it is just so small compared to other companies that may be a better fit as some indices could be viewed as actively managed in a sense. In contrast, there are indices like those from Russell, known for the Russell 2000 small-cap index: Q: Why don't you reconstitute the indexes more often than once a year? A: Maintaining representative indexes must be weighed against the   costs associated with making frequent changes to index constituents   (namely, buying and selling stocks). The Russell Indexes are annually reconstituted because our research   has shown that this strikes a reasonable balance between accuracy and   cost. We originally reconstituted our indexes quarterly, then   semi-annually, but found these options to be suboptimal. Our extensive   research demonstrates that annual reconstitution accurately represents   the capitalization segments and minimizes the turnover required to   reflect the segments as they change. Thus there can be different scenarios.  Then there can be the effect on index funds when price-weighted indices like the Dow Jones Industrial Average has a member that does a stock split that causes some rebalancing too. On the DJIA Divisor: The Dow Jones Industrial Average (DJIA) is a price-weighted index that   is calculated by dividing the sum of the prices of the 30 component   stocks (Dow Jones Industrial Average components) by a number called   the DJIA Divisor or Dow Divisor . The index divisor is updated   periodically and adjusted to offset the effect of stock splits, bonus   issues or any change in the component stocks included in the DJIA.   This is done in order to keep the index value consistent. "lol, please, calculate the correlation and let me know how close to 1 it is. And then let me know what kind of sensible economic model looks like SPX Level = const + beta * Fed Balance Sheet Level. That's a great way to just throw useful statistical inference out the fucking window.  Edit: I'd also like to make it abundantly clear that this is a monumentally retarded ""correlation"" to consider in the first place. The Fed balance sheet prior to 2008 was relatively tiny and unchanging, and yet the stock market was just as volatile in prior years." tl;dr: The CNN Money and Yahoo Finance charts are wildly inaccurate. The TD Ameritrade chart appears to be accurate and shows returns with reinvested dividends. Ignoring buggy data, CNN most likely shows reinvested dividends for quoted securities but not for the S&P 500 index. Yahoo most likely shows all returns without reinvested dividends. Thanks to a tip from Grade Eh Bacon, I was able to determine that TD Ameritrade reports returns with reinvested dividends (as it claims to do). Eyeballing the chart, it appears that S&P 500 grew by ~90% over the five year period the chart covers. Meanwhile, according to this S&P 500 return estimator, the five year return of S&P 500, with reinvested dividends, was 97.1% between July 2012 to July 2017 (vs. 78.4% raw returns). I have no idea what numbers CNN Money is working from, because it claims S&P 500 only grew about 35% over the last five years, which is less than half of the raw return. Ditto for Yahoo, which claims 45% growth. Even stranger still, the CNN chart for VFINX (an S&P 500 index fund) clearly shows the correct market growth (without reinvesting dividends from the S&P 500 index), so whatever problem exists is inconsistent:  Yahoo also agrees with itself for VFINX, but comes in a bit low even if your assume no reinvestment of dividends (68% vs. 78% expected); I'm not sure if it's ever right.  By way of comparison, TD's chart for VFINX seems to be consistent with its ABALX chart and with reality:  As a final sanity check, I pulled historical ^GSPC prices from Yahoo Finance. It closed at $1406.58 on 27 Aug 2012 and $2477.55 on 28 Aug 2017, or 76.1% growth overall. That agrees with TD and the return calculator above, and disagrees with CNN Money (on ABALX). Worse, Yahoo's own charts (both ABALX and VFINX) disagree with Yahoo's own historical data. No, some of Vanguard's funds are index funds like their Total Stock Market Index and 500 Index. In contrast, there are funds like Vanguard PRIMECAP and Vanguard Wellington that are actively managed. There are index funds in both open-end and exchange-traded formats. VTI is the ticker for Vanguard's Total Stock Market ETF while VTSMX is an open-end mutual fund format. VOO would be the S & P 500 ETF ticker while VFINX is one of the open-end mutual fund tickers, where VIIIX has a really low expense ratio but a pretty stiff minimum to my mind. As a general note, open-end mutual funds will generally have a 5 letter ticker ending in X while an ETF will generally be shorter at 3 or 4 letters in length.