Trading E-Mini Contracts in the Futures Market

E-mini futures contracts are one of the lesser known ways to participate in the futures markets.  These contracts offer smaller contract sizes giving a trader/investor the ability to directly participate in the commodity markets with less risk capital and/or leverage.  E-mini futures contracts have grown in popularity over the past several years and now offer enough liquidity in many of the markets to make them feasible trading instruments.  While many traders are aware of the E-mini contracts offered in the stock indices such as the E-mini S&P 500 contract (ES), the E-mini Dow (YM), the E-mini NASDAQ (NQ), and E-mini Russell (RLM/TF), there are now contracts in other markets such as the grains, currencies, metals, and energies.

Benefits of Trading E-Mini Futures Contracts

One of the major reasons why futures traders fail is because they are overleveraged, or have on too much position size given their account size.  This is called “Account Leverage Ratio”.  Essentially, a trader is trading “too big” or is taking on more leverage than he should.  For example, if a trader uses one standard corn contract to trade with $10,000 in his account, his Account Leverage Ratio will be 3.5 to 1.  While this is reasonable leverage, some traders may prefer less.  Using an E-mini corn contract instead, his Account Leverage Ratio will be below 1 to 1.  Using an E-mini corn contract with a $10,000 account is equivalent to trading a standard corn contract with $50,000 in your account.  Thus, the trader is able to establish a position with less leverage.  To take an in-depth look at understanding how leverage impacts your trading, read Craig Turner’s “Trading with Leverage”.

Differences between Standard Futures Contracts and E-mini Futures Contracts

Contract Size

• E-mini contracts offer a smaller contract size so the trade controls less of a commodity
• Less initial margin required for E-mini contracts
• Profit and loss is smaller for the E-mini contract relative to the standard contract

Contract Symbol

• The contract symbol for the E-mini contract is different from the standard contract, e.g., the electronic symbol for corn is “ZC” versus the E-mini “XC“

Liquidity

• E-mini contracts tend to be less liquid (less contracts exchanged) but continue to see increased interest from market participants

Which futures markets offer the mini contracts, what are the symbols, and the contract sizes? How do these compare to standard futures contract sizes?

Grains

• E-Mini Corn (XC) – 1,000 bushels (bu.) vs. Standard Corn Contract (ZC) – 5,000 bu.
• E-Mini Soybeans (XS) – 1,000 bushels (bu.) vs. Standard Soybeans Contract (ZS) – 5,000 bu.
• E-Mini Wheat (XW) – 1, 000 bushels (bu.) vs. Standard Wheat Contract (ZW) – 5,000 bu.

Thus, E-mini grains offer 1/5 the size of the standard contract.  This means the initial margin is 1/5 the amount- $2,025 for the standard contract and $405 for the E-mini.  Likewise, instead of profiting/losing $50 per penny in standard grains, you will profit/lose $10 per penny move.  To calculate this, multiple the contract size times one penny (.01), thus (5,000 bu. X .01 = $50) versus (1,000 bu. X .01 = $10).

Currencies

• E-Mini Euro FX (E7) – €62,000 ($81,250) vs. Standard Euro FX Contact (6E) – €125,000 ($162,500)
• E-Mini Japanese Yen (J7) – ¥6.25 Million vs. Standard Japanese Yen (6J) – ¥12.5 Million

Thus, E-mini currencies offer ½ the size of the standard contract meaning that the initial margin will be 50% less than a standard contract.  A one penny move in the Euro FX yields a profit/loss of $1,250 per penny move versus a profit/loss $625 per penny move in the E-mini currencies.

Metals

• E-Mini Gold (ZYG) – 33.3 ounces (oz.) vs. Standard Gold Contract (GGC) – 100 oz.
• E-Mini Silver (YI) – 1,000 oz. vs. Standard Silver Contract (GSI) – 5,000 oz.

Thus, the E-Mini gold offers ⅓ the size of the standard contract and E-Mini silver offers 1/5 the size of the standard contract.  Instead of profiting/losing $100 per one dollar move in standard gold, you will profit/lose $33.30 in E-Mini gold.  E-mini silver offers $1,000 profit/loss per $1.00 move instead of $5,000 per $1.00 in standard silver.

Energies

• E-Mini Crude Oil (QM) – 21,000 gallons (gal.) vs. Standard Crude Oil (GCL) – 42,000 gal.
• E-Mini Natural Gas (QG) – 2,500 mmBTU vs. Standard Natural Gas (GNG) – 10,000 mBTU
• E-Mini Heating Oil (QH) – 21,000 gal. vs. Standard Heating Oil – 42,000 gal.
• E-Mini RBOB Gasoline (QU)- 21,000 gal. vs. Standard RBOB Gasoline- 42,000 gal.

Thus, most E-Mini energies offer ½ the contract size with E-mini Heating Oil being the exception, offering ¼ the contract size.  Ultimately, traders can utilize less leverage on a per contract basis.  This means that traders who would like to find more comfortable leverage ratios can do so in many of the popular contracts today.  Contact your Daniels Trading broker to learn more about the E-mini futures contracts.