If you’re interested in trading futures, the word “E-mini” should be top of mind. The E-mini is an essential trading asset that has become exceptionally popular because it offers several powerful benefits.
E-mini contracts are used to trade myriad assets, including commodities futures, the Dow Jones, NASDAQ and – key for our purposes here – the S&P 500.
With that in mind, let’s take a deep dive into what S&P 500 E-mini futures are, how they work, the benefits they offer and how to get started trading them.
What are S&P E-mini Futures?
Before we define the E-mini, let’s define S&P 500 futures in general terms.
The S&P 500 is an index of 500 leading public companies across 11 sectors in the United States. Weighted by market cap, the S&P 500 provides a yardstick for how the broader stock market is performing.
You can trade the S&P 500 by purchasing shares of, or buying/selling options on, ETFs that track the S&P 500. You can also trade S&P 500 futures, which are derivative contracts that allow you to speculate on the future value of the index.
One of the most popular ways to trade those futures is through the S&P 500 E-mini.
How do E-Mini S&P 500 Futures Work?
An S&P 500 E-Mini is a contract between buyers and sellers who agree to exchange money based on the performance of the S&P 500. If a buyer goes long on the S&P, her contracts increase in value as the index rises, or decrease as it drops.
The E-mini is an improvement over the standard-sized S&P 500 futures contracts that were introduced in 1982. Those original contracts were priced by multiplying the value of the S&P 500 by $250.
This pricing structure limited the market for futures contracts, as contracts were often priced into the mid six figures, making these contracts mostly of interest to institutional and high net worth traders.
In the late 1990s, however, a new type of S&P futures contract was created: The E-mini. These contracts worked just like standard-sized futures contracts, allowing traders to speculate on whether the index would rise or fall over a given time period. However, there was one substantial difference: Their cost.
What are the Advantages to Trading E-Mini Futures?
The S&P E-mini’s greatest advantage is its accessibility. Because it is priced lower, it can be traded by a much wider group of people. In this sense, the E-mini democratized futures trading on the index.
Priced at just 1/5th the cost of the first S&P futures contracts, the E-mini has a market multiplier of just $50.
Today, the standard-sized contracts are no longer available, although the S&P 500 futures market remains one of the world’s most liquid – another powerful benefit of trading the E Mini S&P 500.
The S&P E-mini also gives traders long, almost around-the-clock trading hours, tight spreads and tax advantages, in some cases.
How Much Money Do I Need to Trade Them?
You may be thinking “1/5th of the mid-six figures is still too much for me.” Fortunately, traders are only required to put up a fraction of the total contract value (called “margin”). This cost varies among trading platforms/brokerages.
If the E-mini is still too expensive, you can opt for the “Micro E-mini,” which has an even lower multiplier ($5) making it just 1/10th the size of the E-mini. The CME Group created the micro because – just like the original S&P 500 futures contracts – traditional E-minis became too expensive for many traders, pushing them out of the market.
The S&P E-mini trades on the Chicago-based CME Group exchange under the ES ticker. It is one of the most actively traded futures assets in the world, so liquidity is excellent.
The tick size (or minimum price fluctuation) on the E-Mini is 0.25, which equals $12.50 per contract. This means that for every tick up or down in the S&P 500’s value, the contract loses or gains $12.50 in value.
How Many E Mini S&P 500 Contracts Can I Trade?
This depends on how much money you have to invest and your risk tolerance. Just remember to never extend yourself beyond your comfort zone.
How can RJ O’Brien Help Investing In E-Mini S&P 500 Futures?
At RJ O’Brien, we offer the industry’s most innovative features for trading E-mini S&P 500 futures. Our advanced trading tools make it simple to execute your Emini futures strategies.
We also provide access to an unrivaled team of industry pros who are experts at everything involving E Mini S&P 500 futures. If you’re interested in trading E-Mini options, we urge you to reach out to us immediately, so we can show you how we’ve helped countless traders just like you succeed in the markets.