Update – this post was written before the launch of CME’s newest product – the Micro E-Mini. Here’s a link to a Micro E-mini resources page.
The E-mini futures products are some of the most popular avenues by which traders engage the world’s leading markets. If it’s a well-known asset class, then chances are it can be traded via E-mini futures.
Traders prefer to trade E-minis instead of more traditional financial instruments for many reasons. Let’s take a look at the top five, in no particular order.
One of the most attractive attributes of the E-minis is simplicity. Each contract is exchange-based, meaning that trade is standardized. Market hours, size and settlement procedures are clearly defined according to the contract’s specifications.
Standardized trade is useful to traders looking for opportunities across multiple markets at the same time. A trader can easily engage several markets simultaneously without the need for separate brokerage accounts or platforms.
The E-mini format offers a broad spectrum of unique asset classes for trading. Precious metals, energies, equities indices and agricultural products are all accessible. The following list illustrates the diversity of E-mini trading options offered by the CME Globex:
- Equities Indices
- E-mini S&P 500 (ES)
- E-mini NASDAQ 100 (NQ)
- E-mini Dow (YM)
- E-mini Russell 2000 (RTY)
- Mini-Corn (XC)
- Mini-Soybean (XKX)
- E-mini Gold (QO)
- E-mini Copper (QC)
- E-mini Silver (QI)
- E-mini Crude Oil (QM)
- E-mini Natural Gas (QG)
- E-mini Euro FX (E7)
- E-mini Japanese Yen (J7)
The price action of each E-mini product closely resembles that of the base futures contract. For instance, the market structure of the E-mini Euro FX (E7) closely resembles the pricing of the Euro FX (E6). This attribute comes in handy when crafting trading decisions based upon technical analysis.
When it comes to E-mini trading, market liquidity varies wildly from product to product. Many markets are very thin while others regularly exhibit robust participation.
By far, the E-mini equities indices offer the highest degrees of liquidity. The E-mini S&P 500 typically experiences daily traded volumes exceeding 1 million. The heavy volumes provide the depth-of-market vital to efficient short-term trading.
However, given the proper approach, even thin markets can be traded effectively. While slippage is certainly an issue in these types of venues, sudden fluctuations in price action can bring opportunity.
4. Low Margin Requirements
Trading the normal-sized futures contract facing many assets can be capital intensive. Maintenance and intraday margins are significant, creating formidable barriers to entry.
As an example, take a look at the difference in margin requirements between the S&P 500 futures contract and the E-mini S&P 500:
|Contract||Initial Margin||Intraday Margin|
|S&P 500 (SP)||$24,750||$12,375|
|E-mini S&P 500 (ES)||$4,950||$500|
E-mini products offer much lower margins, enabling traders of all sizes to participate in the market.
When trading the E-minis, high degrees of leverage are available. The low margin requirements give traders the freedom to increase position size as they see fit.
The age-old investment proverb states that “leverage is a double-edged sword.” It most certainly magnifies both gains and losses exponentially. However, leverage can be used to bolster a trade’s profitability much more than taking a corresponding position in the original security.
For example, let’s say that intraday technicals point to an upcoming rally in the S&P 500. Through buying multiple E-mini S&P 500 futures contracts, the potential rewards are increased much more than through purchasing related ETFs or individual S&P stocks.
Getting Started With E-mini Trading
No matter how much experience a trader has, adding a new product to the portfolio is a daunting task. Risking real money on an unknown quantity is unsettling and often costly. It’s imperative to perform the proper due diligence before entering any new market.
A great place to get up-to-speed on the E-mini products and all things futures is the online educational suite at Daniels Trading. Given adequate preparation, the E-minis can be a valued addition to your portfolio.