I noticed that E-mini S&P 500 futures (ES) typically trade with a very narrow bid-ask spread of 1 tick. What contributes to this small bid-ask spread? I can think of two reasons:
Lots of active market participants competing with each other, which encourages aggressive bids and asks.
The futures contract's underlying is approx. 500 stocks. Liquidity providers do not fear adverse selection by informed traders because traders are unlikely to have an information advantage on 500 stocks. Liquidity providers do not have to widen their spreads to compensate for adverse selection.
Am I correct? Did I miss anything?