|
|
|
THE EMINI CONTRACT
The S&P 500® Index represents the benchmark for large-capitalization U.S. stocks. One does not directly trade the Index
but rather, one trades a futures contract whose price closely parallels movements of the Index. This contract,
dubbed the E-mini® S&P 500 futures ("Emini"), is listed by CME Group, the largest and most diverse futures exchange in the world.
It is the availability of the futures contract that makes trading the Index efficacious as it is much easier, faster
and cheaper to trade the Emini than trying to construct and
trade a corresponding basket of 500 stocks. And most importantly, it is a simple matter to sell a contract and
then buy it back later. By shorting the market, the Emini trader can capitalize on an expected price
decline in the S&P 500 just as easily as the traditional buy-and-later-sell strategy.
The market value or contract size of an Emini is calculated as $50 multiplied by the Emini price for that corresponding contract.
So, for instance, if an Emini day trader buys a June contract at 901.25 and then sells it later in the day at 903.75, then this would result in a
profit of $125 (calculated as 2.50 points x $50 per point), less commission and other trading fees. The Emini contract price moves in increments
of 0.25 points valued at $12.50
While there are several fundamental factors that
can affect the S&P 500 Index, intra-day price fluctuations
are more typically a response to technical considerations and changing expectations. For this reason, the
Emini day trader needs to be familiar with the tools
of
technical analysis.
Anyone wishing to trade the Emini must first open a trading account with a futures broker
and then fund that account. Cash in the account is needed to cover the futures margin - a good faith deposit
that essentially shows your financial ability to handle the risk of the trade - as well as cover any loss on a trade.
The margin is set by CME Group and can change. The good news is that margin for Emini day trading is reduced considerably.
It's best to check with your broker for current margin requirements.
CME Clearing serves as the counterparty to every Emini trade to guarantee performance.
In other words, if you earn profit on a trade, then you will get your money even if the party on the
other end of the trade can not cover their loss.
|
At any given time, there is not just one Emini S&P 500 futures but several, each expiring at a different date. As seen here, there is
a futures that expires in March, one in June, and even one that expires in March of the following year. Each can have a slightly different
price, and all different from the spot Index itself, but they all tend to move by the same amount. Emini trading is usually confined
to the nearby or closest-to-expiration contract, in this case to the March 2012 contract, since liquidity is the highest. |
This free 36-page brochure includes the basics of the Emini contract, trading examples, defining common terms, comparing stock index futures to
Exchange Traded Funds and more. (Adobe Acrobat required.)
|
|
The following trademarks and service marks are owned by Chicago Mercantile Exchange Inc.: CHICAGO MERCANTILE EXCHANGE®,
CME E-mini®, CME®, E-mini® and Globex®. The following are trademarks of The McGraw-Hill Companies: S&P®, S&P 500®.
© World Link Futures, Inc. All rights reserved.
Futures, options and forex trading involves substantial risk and is not for everyone. Only risk capital should be used. General Disclaimer and Copyright
Keywords: Emini basics, Emini trading basics, Emini contract, E-mini basics, E-mini contract
Abstract: Understanding the Emini contract including tick value and what drives prices.
|
|
