What are E Mini Futures?

Contributor, Benzinga

If you want to start trading futures or switch brokers, visit NinjaTrader.

Emini futures are electronically-traded futures contracts that are just a fraction of the value of a corresponding standard futures contract. It may also be called an Emini, ES or simply Mini. Emini futures were created in 1997 to attract casual investors into trading index futures. Trading an Emini futures contract offered the ability to get into the futures game with a smaller amount of risk.

How Do EMini Futures Work? 

Emini futures are mostly traded on the Chicago Mercantile Exchange (CME). They are available on a wide range of indexes, including NASDAQ 100, S&P 500, S&P MidCap 400 and Russell 2000. Emini futures are also available on commodities and currencies.

In a way, all futures are fundamentally the same. Futures are financial contracts that a buyer and seller enter into. This contract obligates the buyer to purchase the asset, and it obligates the seller to sell the asset at a predetermined price on a set future date. The asset could be a financial instrument or it could be a physical commodity such as oil or another energy source. Eminis simply have a lower value than full-sized future contracts. The lower value makes them more accessible to small traders and has become very popular over time.

Each contract on the market has a settlement price. This is the average price at which a contract trades on a daily basis. It is calculated at the open and close of the market on each trading day. The daily settlement prices for Eminis are pretty much the same as the daily settlement prices of full-size contracts. 

List of EMini Futures

  • S&P midcap 400 (symbol EMD)
  • S&P smallcap 600 (symbol SMC)
  • NASDAQ 100 (symbol NQ, 100 largest NASDAQ companies)
  • NASDAQ Composite (symbol QN, all 3,000+ NASDAQ companies)
  • NASDAQ Biotech (symbol BQ)
  • Dow (symbol YM, traded on CBOT exchange)
  • Russell 2000 (symbol TF, traded on NYBOT/ICE exchange, small-cap index, formerly ER2 on CME)
  • Russell 1000 (symbol RF2, traded on NYBOT/ICE exchange, large-cap index, formerly RS on CME)
  • Metals and commodities such as copper, gold, silver, corn, wheat, soybeans, natural gas, crude oil, heating oil and unleaded gasoline
  • Forex rates versus the U.S. dollar such as Euro, British Pound, Swiss Franc, Japanese Yen, Australian Dollar, Canadian Dollar and Chinese Renminbi

EMini Futures vs Regular Futures

There really isn’t that much of a difference between Emini futures and regular, full-sized futures. Both types of futures can be great trading tools. The only real difference is that traders can commit smaller amounts of money by using Eminis instead of full-sized futures.

You can use Eminis no matter which futures strategy you are using.  Commonly-used strategies include:

Hedging: You’re probably familiar with this term because “hedging your bets” is a common phrase. Think of a hedging strategy as having the exact same meaning. Hedging your bets means that you are both buying and selling — or taking both the long and the short positions — on a specific stock. Using this strategy can provide security and lower the risk of investing even further. Even if the stock price goes down, you will be able to make up at least some of your investment. 

Calendar spread: This is a strategy that is similar to hedging. Using a calendar spread strategy takes hedging a step further. You will take both the long and short positions on the same stock future, using 2 different contracts. With this strategy, each stock futures contract has a different expiration date.

Intermarket spread: Are you noticing a theme? This strategy also involves taking both the long and short positions on stock futures. But instead of going long and short on the same stock future, you will take the long position on one and the short position on the other. This is done by choosing 2 different stock futures that are within a related market. You will purchase your stock futures for the same date. The idea behind this strategy is that if you suffer a loss from one stock future, you might be able to gain on the other because you chose stock futures within the same market.

Matched pair spread: Similar to an intermarket spread strategy, a matched pair spread means that you enter a futures contract to buy shares in 2 companies. In this case, the 2 companies are direct competitors. For example, you might decide to buy futures in both Uber and Lyft, the 2 top ride-share companies. Using this method will allow you to guarantee that you will break even on your investments.

Speculating: Speculating is a strategy that may be considered to be riskier than some of the other strategies. You predict short-term movements within the stock market and invest your money on those stock futures. If all goes well, you’ll receive a big return on your investment. When you use the speculating strategy, you invest large amounts of money on margin. Think of the term “on margin” as a down payment on your house. Typically, you only need to put down between 10% and 20% on a down payment, right? The same thing applies here. This method is mainly used to cash in quickly on fluctuations within the stock market.

EMini Futures vs Micro EMini Futures

In 2019, the Micro Emini was launched. Micro Eminis are essentially the same as regular Emini futures contracts. The only difference is that it is 1/10th of the size of a regular Emini contract. The margin to trade a Micro Emini contract is 1/10th of the size as well.

Pros of Trading EMini Futures 

  • Emini futures offer round-the-clock trading.
  • There is a lower amount of financial investment and risk involved with trading Eminis, making it a more accessible trading product for many small traders.
  • It’s easier to understand than some other areas of investing, such as options trading and forex trading

Cons of Trading EMini Futures 

  • Electronic markets can move very quickly, making it uncomfortably easy to lose a good chunk of money in a short period of time.
  • It can also be easy to see trading Eminis as a game without immediately realizing the very real risks. This can get you into trouble if you’re not careful.

How are EMini Futures Regulated? 

Futures are regulated by a federal agency called the Commodity Futures Trading Commission. It was created by Congress in 1974 solely to regulate the futures market and ensure the integrity of futures market pricing. 

Before we move on to talk about brokers, know that any brokerage firm that engages in futures trading is regulated by this commission. This regulation can help prevent abusive trading practices and fraud from occurring. 

How to Trade EMini Futures

Are you ready to trade Emini futures? First, you’ll need a futures brokerage account. You’ll need this even if you already have a stock trading account. Even though the accounts are similar in how they work, they fall under different regulations. 

You’ll also need to find a charting platform and determine what your trading strategy is. Don’t forget to review the trading strategies above for a quick overview of your options. 

It can be helpful to have your futures brokerage account in the same place as your charting platform. There are some companies that offer this, such as NinjaTrader and E*Trade. In general, here are some things you might want to keep in mind when researching to find the best brokers:

  • What commissions does your futures broker charge?
  • How available is the futures brokerage firm? Is there someone available to answer your questions if you need help?
  • Are the charting and screening tools up-to-date?
  • Is the trading platform easy for you to navigate? Is it responsive enough that you don’t have to sit around impatiently waiting for things to load?
  • In the case of Eminis and micro-Eminis, does the brokerage firm offer the ability to trade these types of futures?

It may seem difficult to find a brokerage firm that will meet all of these requirements. Luckily, they’re out there! NinjaTrader is a good option for active traders who want access to a large collection of technical analysis tools. These tools can help you make smarter investing and more well-informed investing decisions, no matter how experienced you are at trading futures. NinjaTrader also offers low commissions and a free 2-week trial for new users.

Final Things to Know About Emini Futures 

Emini futures really aren’t all that different than regular, full-sized futures. There’s basically a chain of futures options, each one getting smaller as you go. You start with full-sized futures, then Eminis and finally micro-Eminis. 

Before you start trading futures, you should know how much you’re willing to invest and trade. The money that you put forward will be your initial capital. To open a futures trading account, you’ll need to have a minimum amount of money available. Depending on your broker, this could be anywhere between $5,000 and $10,000. 

You will be using your brokerage firm to access the market and do your trading, so it’s important to feel confident with the brokerage firm you choose. You should also be aware that the futures broker you choose may have different minimum requirements to trade Eminis, or any other type of future. The minimum amount you need in your account can also depend on the time of day you’re trading and the current market volatility.

If you’re not comfortable with jumping in just yet, that’s okay. You can consider trading micro Emini futures if you want to get your feet wet first. Or you can take another step back completely and use a simulator account or a different type of trading first. 

The most important thing to know about futures trading is that you shouldn’t risk more than you’re willing to lose. So if you’re not comfortable or don’t feel like you know enough yet, there’s no rush! Trading futures is just one part of the varied and sometimes complex world of investing. 

Are you interested in learning more about futures? Head over to Benzinga’s Futures & Options Courses.