Intro to E-Mini Futures Day Trading
The E-Mini futures have become one of the staple methods of day trading over the years due to nearly round-the-clock trading hours, low margin requirements and healthy levels of volatility and liquidity.
Although there are many E-mini contracts, E-mini is typically the abbreviation of the E-Mini S&P 500 futures contract. It was the first E-mini contract offered by the CME in 1997. It was originally designed to make futures trading a more accessible instrument to traders, as the full-sized S&P 500 contract was becoming too large for most. It rapidly became a success, and the CME created many more mini-sized contracts as a result.
Some of the most popular E-mini contracts available today:
|Contract||Symbol (Firetip X)||Tick Value|
|E-Mini S&P 500||ES||$12.50|
|E-Mini NASDAQ 100||NQ||$5.00|
|E-Mini DOW ($5)||YM||$5.00|
|E-Mini Crude Oil||QM||$12.50|
Why Trade E-Mini Futures?
Many factors make E-mini futures appetizing to day traders, including:
Leverage: Futures are leveraged by nature. For example, the tick size on an E-Mini S&P 500 is $0.25, but the tick value is $12.50, 50 times the actual price fluctuation. This entices traders to capture small market movements throughout the day, as opposed to waiting for larger movements to see substantial gains or losses.
Shorting: Different from stocks, where the margin requirement to short a market is typically much higher than going long, the requirement to short futures is the same as going long.
Trading restrictions: There are no pattern day trading rules in futures. Any account size or type can technically trade as much as they’d like in the span of a trading day.
Access: Futures markets trade nearly 24 hours a day.
Resources: Brokerage firms and software vendors alike offer a wealth of additional trading resources. Many trading platforms today provide advanced charting and analytics, such as live depth-of-market, spread builders, and custom market indicators. You can view some of the tools available to you here.
The nature of electronic trading: E-mini futures can move very quickly in either direction. Elevated levels of volatility can be dangerous to any trader. Remember, we explained how futures are leveraged. This can be both beneficial and detrimental, as your positions can move very quickly with and against you.
Overtrading: It can be very tempting to a trader to accumulate large numbers of trades throughout the day. Beginner futures traders tend to overlook the fact that every time they buy or sell, there are various fees such as commissions, exchange, clearing, NFA, and platform fees. These fees can stack up very quickly if they’re not paid attention to.
Margins are an extremely important concept to understand as a futures trader. Being under-capitalized during a trade can result in the brokerage’s risk desk liquidating your position at non-preferable prices and charging fees for doing so.
Initial Margin: This is the exchange-set margin requirement per contract to initiate a position.
Maintenance Margin: This is the dollar amount per contract required by the exchange to maintain your position. If your account falls below this figure, your account will be placed on Margin Call status and will need to meet this call by sending additional funds or reducing positions to satisfy the Initial Margin requirement.
Intraday Margin (Day Trading Margin): This amount is typically set by your broker. It is the dollar amount you need in your account per contract to initiate a trade, and it only applies to the day trading hours set by your broker. Many beginner traders misunderstand this term and will try to hold positions at low margins through the market close. This will usually result in your broker liquidating your positions. We recommend that all traders do their best to meet the full margin requirements of their preferred contracts, but we also understand that some smaller traders require lower margins to access some of these markets.
If you have any questions, feel free to contact us or leave a comment.
DISCLAIMER: There is a substantial risk of loss in trading commodity futures and options products. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results. Please contact your account representative with concerns or questions.