In this post I’d like to answer the questions: What are emini futures? Why trade emini futures? How do emini futures work? and many more popular questions about trading emini futures.
This is designed as a beginners guide to give a concise overview of the emini futures markets.
Table of Contents
- What Are Emini futures?
- Types of Emini Futures Contracts
- What are the most popular Emini futures contracts?
- What are the best Emini futures contracts to trade?
- Why trade Emini futures?
- How do Emini futures work?
- What is the Emini S&P 500?
- How to trade emini futures?
What Are Emini futures?
Emini futures are a series of futures contracts that represent a fraction of the total contract price for the standard futures contract that the instrument represents.
The Chicago Mercantile Exchange (CME) first introduced emini products to the market in September 1997. The first emini futures contract launched was the emini S&P 500. This contract is the smaller relative of the S&P 500 standard futures contract.
The motivation for offering the emini concept was to encourage more participation in the stock index futures markets since the larger S&P 500 contract started to become to large for smaller players to trade. The emini S&P 500 is one-fifth of the size of the original S&P 500 futures contract requiring one-fifth the margin to trade. Making it a far more affordable option for retail traders and investors.
Types of Emini Futures Contracts
Since the inception and success of the emini S&P 500 futures contract. Several other emini contracts have been introduced.
To date CME offer over 40 emini futures contracts. These are available for a range of stock market indices, commodities and currencies.
List of Emini Futures contracts
The following is a list of the more popular emini futures contracts with ticker symbol. Contracts are available through the following exchanges: CME, Comex, CBOT, NYMEX and ICE.
- E-mini S&P 500 (Ticker Symbol ES) (Exchange CME)
- E-mini S&P MidCap 400 Futures (Ticker Symbol EMD) (Exchange CME)
- E-mini S&P SmallCap 600 Futures (Ticker Symbol SMC) (Exchange CME)
- E-mini NASDAQ-100 Futures (Ticker Symbol NQ) (Exchange CME)
- E-mini NASDAQ Composite Futures (Ticker Symbol QCN) (Exchange CME)
- E-mini NASDAQ Biotechnology Futures (Ticker Symbol BIO) (Exchange CME)
- E-mini Dow ($5) Futures Ticker (Ticker Symbol YM) (Exchange CME)
- Russell 2000 Index Mini Futures (Ticker Symbol TF) (Exchange ICE)
- Russell 1000 Index Mini Futures (Ticker Symbol RF) (Exchange ICE)
- E-mini Light Sweet Crude Oil (Ticker Symbol QM) (Exchange NYMEX)
- E-mini Natural Gas Futures (Ticker Symbol QG) (Exchange NYMEX)
- E-Mini Gold Futures (Ticker Symbol QO) (Exchange COMEX)
- E-mini Silver Futures (Ticker Symbol QI) (Exchange COMEX)
- E-mini Copper Futures (Ticker Symbol QC) (Exchange COMEX)
- Mini-Sized Corn Futures (Ticker Symbol YC) (Exchange CBOT)
- Mini-sized Soybean Futures (Ticker Symbol YK) (Exchange CBOT)
- Mini-sized Wheat Futures (Ticker Symbol YW) (Exchange CBOT)
- E-mini Euro FX Futures (Ticker Symbol E7) (Exchange CME)
- E-mini Japanese Yen Futures (Ticker Symbol J7) (Exchange CME)
To search detailed specifications of any of this products click here and search for the ticker symbol listed.
What are the most popular Emini futures contracts?
The most popular emini futures contract is without a doubt the emini S&P 500 contract. Its growth in popularity in recent times has seen volumes traded exceed that of its larger S&P 500 counterpart.
Now only do smaller non-professional investors participate in the emini S&P 500 trading, now larger professional traders use the smaller contract as their instrument of choice.
Its popularity has allowed it to be fondly referred to simply as the ES or even the ’emini’.
Its trading volume dwarfs all other emini future contracts combined.
What are the best Emini futures contracts to trade?
The emini S&P 500 trading volume makes it without doubt the best emini futures contract to trade.
In my opinion its also the best day trading instrument available today across all markets.
If for some reason you wish to trade other emini contracts the next best option to consider would be the E-mini NASDAQ-100 Futures (NQ) which trades at about one quarter the volume of the ES.
Why trade Emini futures?
Emini futures is a excellent market for beginner traders with limited startup capital and perhaps lower risk tolerance.
The Emini S&P 500 is one of the best day trading markets available for non-professional and professional traders.
Emini futures offer all the benefits of the other full sized futures contracts:
Advantages of Trading Emini Futures:
High volatility: Futures markets are principally designed for Hedgers who aren’t looking to directly profit from trading futures. Instead looking to protect core commodity positions. On the other hand speculators have started to makeup an increasingly larger part of the futures trading volume. These speculators have been blamed for large price swings and fast moving markets. This volatility is perfect for day trading.
High liquidity: The popularity of Emini futures (particularly the ES) among speculators and HFT’s has added huge volume into these markets. This liquidity is perfect for entering and exiting even large short term trades.
Low barrier to entry: The advantage of trading futures over Stocks is the Pattern Day Trading (PDT) rule doesn’t apply to futures. Some brokers offer account minimums of $1000 with margins per contract at $500.
Emini contracts are a fraction of the size of full sized contracts. Futures contracts move in ticks being the smallest price increment. For the ES this represents $12.50 per tick.
Trade a Single Market: The high volatility provides enough opportunity in a day to allow traders to trade a single market.
Short selling: In futures short selling is as simple as trading long. There’s no need to source borrows like in stocks.
Lower tax rate: Trading futures is taxed differently from other markets such as Forex or Stocks. In futures profit income is taxed at a blended rate called the 40/60 rule. 60% of profits is taxed at a long term capital gains rate plus 40% at a short term capital gains tax rate (short term rate is typically higher than long term rate). All gains in stocks and forex are taxed at the higher short term rate. Note: This applies to US tax residents and should NOT be considered tax advice, remember to always consult your own tax professional or accountant.
How do Emini futures work?
Emini futures contracts work the same as full size futures contracts except they are a fraction of the size.
Each futures contract represents a specific amount of the underlying asset, known as the ‘contract size’. The contract also specifies where the asset will be delivered and its delivery date also referred to as the expiration date.
Futures contracts are set to expire on a periodic basis. Typical expiration dates are monthly or quarterly.
For example the Emini S&P 500 (ES) and E-mini NASDAQ-100 Futures (NQ) expire quarterly.
What is Futures Contract Expiration?
Expiration is designed as the date at which a trader takes delivery of the contract.
The expiration date of futures contracts typically occurs on the third Friday of the expiration month, but this does vary depending on the contract.
Prior to a contract expiration futures traders have 3 options:
Offset or liquidating the position
Offsetting or Liquidating a position is the simplest and most common method of exiting a trade before expiration.
If a trader chooses to offset a position they are able to realize all profits or losses on a current position without taking physical delivery.
To Liquidate or offset a position a trader must take out an equal but opposite transaction to neutralize the trade. This is effectively want every short term trader is doing to enter and then exit a trade position.
Rollover is when a trader moves an open position from the front month (contract about to expire) to another contract.
Traders watch the volume of both contracts to determine when is the best time to rollover. Traders typically choose to rollover to the next months contract when the volume increases to a certain level.
Rollover is done by simultaneously offsetting or liquidating a position in the front contract and then placing an identical new position in the next month contract.
Rollover needs to be completed before the expiration date of the front contract.
If a trader doesn’t offset or rollover their position before the expiration date the contract will expire and position will go to settlement.
A trader with a long position is obligated to take possession of the underlying asset and a trader with a short position is obligated to deliver the asset.
Of course as day traders we aren’t wanting to be taking delivery of the contract or go to settlement. Therefore understanding when a futures contract will expire is important to understand.
Contract codes identify the underlying asset being traded and the expiration date of the contract. The following is a key to understanding the various contract codes:
Contract Codes are typical one – three letters that identify the asset being traded plus additional characters identifying the month of expiration.
Important Note: Contract codes are sometimes identified differently depending on the electronic trading platform.
For a full list of Asset Contract Code click here
Calendar months expiration dates are identified by the following symbols:
- January – F
- February – G
- March – H
- April – J
- May – K
- June – M
- July – N
- August – Q
- September – U
- October – V
- November – X
- December – Z
The expiration year is indicated as one or two digits following the month.
For example: An Emini S&P 500 contract due to expire March 2019 on the Globex Platform would be listed as ESH19.
Each contract represents a specific amount of the underlying asset to be delivered. For example 1000 barrels of Crude Oil.
The minimum price movement of any futures contract is referred to as a tick.
The value of a single tick varies depending on the product being traded.
The Emini S&P 500 for example:
A single tick represents 0.25 of an index point.
An index point for a single contract is equivalent to a $50 price movement.
Therefore a single tick is equal to 0.25 x $50 = $12.50
What is the Emini S&P 500?
The Emini S&P 500 is by far the most popular Emini contract.
At the time of writing the ES was trading with a daily volume of 1.3M contracts versus the next highest volume E-mini contact the E-mini Nasdaq 100 futures, trading at 380K contracts daily.
This ES normally what aspiring futures traders learn first.
Below is a list of the Contract specification for the
Emini S&P 500:
Symbol: ES (CME)
Tick Value: 0.25
Cost per Tick: $12.50 USD
Margin: $500 USD / Contract
The specific benefits of trading the ES are: Good liquidity to get in and out of positions quickly. Also lots of predictable price patterns.
The drawbacks of trading the ES are: To much volume leads to a sideways range bound market without the big break-outs seen in Crude, Gold or Russell contracts.
The ES is a Range bound market look to ‘selling the highs and buy the lows’.
In my opinion the best time to Trade the ES is from 9:30am – 12:30am EST and then from 3:30pm-4:00pm EST.
For more specification details on the E-mini S&P 500 click here.
How to trade emini futures?
If you think that trading E-mini futures or even futures is for you, then I’ve written a detailed step by step guide on ‘How to start day trading‘. This is an excellent resource for anyone looking to trade futures or any market for that matter.
In this post I outline the key decisions that need to be made when selecting which market to trade, how to get educated, selecting a trading platform. I explain how to open a brokerage account and much more.
Platform Setup Guides
If you’d like to start trading a demo brokerage account the following platform setup guides provide all the information you need to get started. Both Sierra chart and NinjaTrader 8 are excellent trading platforms for trading futures: