What Are E-mini Futures?
The term E-mini refers to electronically-traded futures contracts that represent a fraction of the size of a standard contract. These contracts facilitate trading assets such as commodities, currencies, and most commonly, indexes.
The Chicago Mercantile Exchange (CME) introduced the first E-mini futures contract in 1997, giving individual investors easier access to the futures market. Traded similarly to standard futures contracts, E-minis provide an avenue for both hedging and speculating on price movements of underlying assets.
Key Takeaways
- Smaller Scale: E-mini futures are a fraction of the value of their standard counterparts.
- Diverse Offerings: Traded predominantly on the Chicago Mercantile Exchange, they cover a wide array of assets.
- Major Innovation: First launched in 1997 for the S&P 500, sparking a variety of new contracts.
- Versatile Usage: Used for hedging or speculating on asset price movements.
- Accessibility: Readily available but can be volatile and have scope limitations.
Understanding E-mini Futures
Futures contracts obligate the holder to buy or sell an asset at a predetermined date and price. These contracts, which are standardized for trading on futures exchanges, detail the quality and quantity of the underlying asset. They can either involve the physical delivery of the asset or be settled in cash.
Historically, futures contracts were mainly accessible to institutional investors due to their large sizes. The CME introduced E-mini contracts to engage individual traders. The first E-mini contract enabled trading of S&P 500 futures at one-fifth of the value of the full-sized contract. This success paved the way for more E-mini contracts for various assets, including indexes like S&P 500, DJIA, and commodities like oil and gold.
E-mini S&P 500 remains the most actively traded E-mini contract globally, trading almost 24 hours daily, Sunday through Friday. Traders need a brokerage account to trade E-mini futures. The original full-sized S&P 500 futures contract was delisted in September 2021.
Comparing E-minis to Full-Sized Futures
E-mini contracts share many features with full-sized futures: both are used to hedge or speculate on various assets. Despite their smaller scale, E-minis align with broader trading strategies, including spread trading. The trading volume of E-minis often surpasses that of their full-sized counterparts.
Detailed Breakdown of E-mini S&P 500 Futures Contract
E-mini S&P 500 contracts are set at one-fifth the size of the standard contract. The contract size is calculated as $50 multiplied by the S&P 500 index value. For instance, if the S&P 500 value is 2,580, the contract is worth $129,000. A 0.25 point change in the index thus affects the contract’s value by $12.50.
Trading under the Globex ticker ES, the E-mini S&P 500 is accessible on the CME almost 24/7, excluding a brief halt from 5 p.m. to 6 p.m. ET. The contracts expire quarterly and are available for nine consecutive quarters and three additional December months.
Pros and Cons of E-minis
Advantages
- Affordability: Low margin rates and costs make them accessible to active traders.
- Extended Trading Hours: Nearly around-the-clock trading on the CME.
- Liquidity and Volatility: Highly liquid with opportunities arising from volatility.
Disadvantages
- High Volatility: Price movements can be rapid and unpredictable due to 24/7 trading.
- Limited Contracts: Selection is narrower compared to other securities like ETFs or mutual funds.
E-mini S&P 500: The Essentials
The E-mini S&P 500 is a futures contract representing one-fifth of the now-delisted standard S&P futures. Tied to the S&P 500 index, it is crucial for trading U.S. large-cap stocks.
Cost and Trading E-mini S&P 500
Priced at $50 times the S&P 500 value, if the index is at 2,500, the contract costs $125,000. While no legal minimum balance is required, traders must cover margins and account fluctuations, varying by broker, but some allow accounts starting at $500.
Exploring Micro E-mini Futures
Micro E-mini futures offer an even more accessible option with a contract price of $5 times the relevant index value. This further lowers the entry barrier for interested traders.
Related Terms: futures contracts, hedging, speculation, indexes, Commodities, Currencies, Micro E-minis.
References
- Chicago Mercantile Exchange. “Timeline of CME Achievements”.
- Federal Reserve Bank of New York. “The Overnight Drift”, Page 6.
- CME Group. “E-mini S&P’s - The Ultimate Index?”.
- CME Group. “E-mini S&P 500”.
- CME Group. “Conclusion of Standard S&P 500 Futures and Options Trading”.
- The University of Tennessee, Legal Scholarship Repository. “The Regulation of Equity Index Futures”, Page 24.
- CME Group. “Welcome to E-mini S&P 500 Futures”.
- CME Group. “E-mini S&P 500 Contract Specs”.
- Internal Revenue Service. “Form 6781”, Pages 1, 2.
- CME Group. “Micro E-mini S&P 500 Index Futures - Contract Specs”.
