What is E-mini Futures Trading?
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
E-mini futures have become some of the most notable and popular trading contracts in the market, and have arguably become the most important trading vehicle in the world. E-mini futures are electronically traded futures contracts. They are often much smaller in size than full size futures commodity. Due to this smaller size and ease of transferability, they are often valued at only a fraction of a typical futures commodity. Much to the advantage of their traders, their small size makes trading emini futures accessible to a much wider pool of investors, quickly making them an extremely popular investment vehicle among futures traders.
E-mini futures began in the late 1990s. Large exchanges had to deal with the practice of futures trading becoming far too expensive. The practice of futures trading was only available to the individuals who could afford very large (SP) contracts. These individuals were almost exclusively the extremely wealthy or already well established professionals. In response, the Chicago Mercantile Exchange (CME) created E-mini futures, and as such, the practice of E-mini futures trading – which still takes place on the CME to this day!
This new type of contract would be 1/5th the size of larger S&P 500 futures contracts, and therefore would only require 1/5th the margin to trade. The ease of accessibility and their affordable buy-in attracted non-professionals and seasoned futures trading professionals alike. The practice of E-mini futures trading has only since grown in popularity and in 2009, officially overtook traditional futures trading as the more popular investment vehicle.
What is the Difference Between Emini Trades and Futures Trades?
The key difference between emini trades and full sized futures trades is their size and accessibility. While futures trades often require the buyer or seller to exchange physical goods, emini trades are predominantly electronic. As such, traditional full sized futures are fundamentally reliant on the quality of the physical goods that are being traded, and their physical limitations. When trading crops for example, an investor can only be as successful as their harvest, and even with a successful harvest, the investor is still required to settle the trade through physical delivery or cash. Being mostly online, E-mini trades remain consistently affordable for buyers to buy and for sellers to sell. They are not affected by the same natural limitations that many traditional futures commodities can be.
Aside from this fact, E-mini trades can accomplish anything that a traditional futures trade contract can, at a fraction of the cost. As an online asset, E-mini trades can be traded around the clock with low margin rates. They are more affordable being on average 1/5th the cost of futures trades. Best of all, they offer volatility and can be easily liquidated. They are a fast and offer smaller size, hence “lower risk” alternative to futures trading of the large size contracts that active traders, inexperienced and non-professional, as well as professional traders alike can use to grow and diversify their investment portfolio.
Why Invest in E-mini Trades
E-mini trades are a lower risk way for beginners to enter into trading futures versus the large contracts (but that risk exists!), or, as a professional, diversify your portfolio. Emini trades are often used as a hedge in an investors portfolio. Hedges are assets that are negatively correlated to an investor’s existing assets. This means that the two commodities are not affected or vulnerable to the same factors like the economy or the weather. It is important to set up hedges in your portfolio so that if an asset you are invested in begins to depreciate, you will have another investment appreciating in the opposite direction to balance it out. E-minican act as reliable hedges in any investors portfolio, specifically for hedging certain stock portfolios.
E-minis can also provide speculative opportunities for investors. A speculative opportunity describes an opportunity that has a chance to make a significant gain, but holds an equal if not greater risk of losing value. Since E-mini trading is volatile and highly liquid, it makes an excellent candidate for a speculative investment.
How Does E-mini Trading Work?
Since the E-mini market is conducted online, it is easy to track at all hours of the day and night. E-mini trading requires diligent brokering and market research, and like most futures investments, a robust and defined trading methodology. As with most futures, the investor is only required to front a fraction of the contracts value, which as an E-mini, is much lower. From there, E-minis operate as all other future contracts would with less risk and with greater trade volumes due to more people being able to participate.
The E-mini Trading Market
The E-mini trading market behaves similarly to a standard market of futures contracts. Due to its high inclusivity, the E-mini market is among the Top 3 Largest Traded Markets in the world! The Chicago Mercantile Exchange (CME) originally intended for these contracts to begin as the E-mini S&P 500. Since then, the demand for these contracts has grown, and the market has responded. Currently, E-minis are available across multiple different indexes, commodities, and currencies. Some of which include: The NASDAQ 100, S&P 500, S&P MidCap 400, and the Russell 2000.
With the increasingly large number of contracts available, navigating them can be overwhelming. Cannon Trading will help you to get started by partnering you with a professional futures broker. Our professional team members will help to advise you on which platforms and which investments are right for you, whether as E-mini trades or futures trades. We will then help to advise you on all of your trading needs and questions when they arise with our extensive background and knowledge of futures trading and E-mini trading. Don’t go it alone, start your futures trading journey with expert assistance from Cannon Trading.
Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources.