What Is an E-mini?
The term E-mini refers to an electronically-traded futures contract that may be a fraction of the dimensions of an ordinary contract. E-minis are used to trade a wide range of assets, similar to commodities and currencies, but essentially the most commonly traded assets using E-minis are indexes.
The Chicago Mercantile Exchange (CME) launched the primary E-mini futures contract in 1997 to present individual investors, for whom standard contract sizes were often too expensive, access to the futures market. Like other futures contracts, E-minis are traded on the CME and other exchanges, and permit investors to hedge their bets or speculate on the value movements of the underlying asset.
Key Takeaways
- E-minis are electronically traded futures contracts which are a fraction of the worth of corresponding standard futures contracts.
- These contracts are predominantly traded on the Chicago Mercantile Exchange and can be found on a wide selection of indexes, commodities, and currencies.
- The primary E-mini contract was launched in September 1997 and was based on the S&P 500.
- Traders use E-minis as a hedging tool or to invest on the value movements of the underlying assets.
- Although E-minis are available and simply traded, they’re limited in scope and should be highly volatile.
Understanding E-minis
All futures are financial contracts that obligate the holder to purchase or sell an asset, similar to a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the standard and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in money.
Futures contracts were typically only accessible to institutional investors due to their size, which was often too large for small investors. The CME launched the primary E-mini contract in 1997 to attract in average traders who were keen on collaborating on this alternative investment. This primary E-mini contract allowed traders to trade S&P 500 futures. Its value was set at one-fifth of the full-sized contract.
The E-mini quickly became successful and led to other similar contracts. There at the moment are E-mini contracts that cover a wide range of assets, including:
The E-mini S&P 500, nonetheless, stays essentially the most actively traded E-mini contract on the planet.
Similar to other futures contracts, traders can use a single E-mini contract to hedge or speculate on broad market moves. Because they’re traded electronically, E-mini futures contracts trade almost 24 hours a day between Sunday and Friday. Investors are required to open an account with a brokerage firm so as to begin E-mini futures trading.
The CME delisted the standard-sized S&P 500 index futures and options (on which the E-mini contract was based) in September 2021. This contract was price $250 times the worth of the S&P 500 Index. So if the index was 2,100, the contract could be price $525,000.
E-minis vs. Full-Sized Futures
E-mini contracts aren’t that much different than full-sized futures contracts. These smaller contracts also allow investors to hedge or speculate on price movements of the underlying asset, whether it’s an index, commodity, or currency.
As such, investors can achieve their trading strategies with E-minis, including spread trading. And E-minis are so popular that their trading volumes eclipse those of full-sized futures contracts.
E-mini S&P 500 Futures Contract Specifications
As noted above, the E-mini contract was created to be one-fifth of the dimensions of the standard-sized contract. The contract size is the worth of the contract based on the value of the futures contract times a contract-specific multiplier.
As an example, the E-mini S&P 500 has a contract size of $50 times the worth of the S&P 500. If the S&P 500 trades at 2,580, the worth of the contract is $129,000 ($50 x 2,580). Because of this a 0.25 point change within the S&P 500 index has a monetary value of $12.50.
The E-mini S&P 500 trades under the Globex ticker ES. As noted above, it is on the market on the CME nearly 24/7 from Sunday to Friday, 6 p.m. to five p.m. ET with a short lived trading halt between 5 p.m. and 6 p.m. ET. Contracts are quarterly (March, June, September, December) and are listed for nine consecutive quarters in addition to three additional December contract months.
IRS Form 6781 stipulates that any gains from futures contracts traded on a U.S. exchange, foreign currency contracts, dealer equities options, dealer securities futures contracts, or non-equity options contracts are taxed at a mix of the long-term and short-term capital gains rates. 60% is treated as long-term gain and 40% is treated as short-term gain whatever the length of the contract.
Benefits and Disadvantages of E-minis
Benefits
E-minis are ideal trading instruments for energetic traders because they provide round the clock trading, low margin rates, volatility, liquidity, and greater affordability than standard contracts.
One other profit is that the fees related to trading E-minis are typically lower than those linked to the buying and selling of standard securities.
Disadvantages
As with every financial instrument, E-minis even have their downsides. For instance, due to their round the clock and electronic trading component, the value of E-minis can move in a short time.
One other downfall to those alternative investments is their limited scope. The number of available e-mini contracts could be limited and doesn’t necessarily span as wide an array of assets as, say, an exchange-traded fund (ETF) or mutual fund.
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Low costs and inexpensive
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Nearly 24/7 trading
What Is an E-mini S&P 500?
The E-mini S&P 500 is an electronically traded futures contract that’s one-fifth the dimensions of now-delisted standard S&P futures. Its futures and options are based on the underlying S&P 500 stock index. Consisting of 500 individual stocks representing the market capitalizations of enormous corporations, the S&P 500 is a number one indicator of large-cap U.S. equities. The E-mini S&P 500 contract trades under the Globex code ES.
How Much Does an E-mini S&P 500 Contract Cost?
The E-mini S&P 500 is priced at $50 times the worth of the S&P 500. This implies if the S&P 500 is at 2,500, the worth of the contract is $50 x 2,500 or $125,000.
How Much Money Do You Have to Trade E-mini Futures?
There isn’t a legal minimum on what balance you need to maintain to day trade futures, although you need to have enough within the account to cover all day trading margins and fluctuations which result out of your positions. These can vary by broker nonetheless some require as little as $500 to open an account.
How Much Is a Micro E-mini Futures Contract?
Because the name suggests, micro E-mini futures offer investors a good cheaper futures contract than E-minis. Whereas the E-mini S&P 500 has a contract price of $50 times the S&P 500, the micro E-mini’s contract price is $5 times the index.