Beginner's Guide To E-Mini Futures Contracts: Trading The E-Minis
E-mini traders enjoy relatively low costs in terms of commissions and exchange execution, and clearing fees. Commissions vary depending on the particular broker. TradeStation, for example, offers a sliding commission schedule based on trading activity. If the trader executes 300 or fewer trades per month, the commission would be $1.20 per side, per contract. This means that the trader will pay $1.20 per contract to get into the trade, and $1.20 per contract to get out of the trade (collectively known as a "round-trip" trade). Commissions drop to as little as 25 cents per side, per contract if more than 20,000 contracts are traded each month. Exchange execution and clearing fees for CME, for example, add another $1.14 per side, per contract. Non-exchange members are also charged an additional NFA Regulatory Fee of 2 cents per contract.
In addition to fees and commissions for trade executions, many traders will be required to pay monthly subscription fees to receive the appropriate data feeds. This may involve two separate data feed subscriptions: one for CME data, the other for ICE.
Trading platforms often go hand in hand with brokers. TradeStation, for example, offers both a professional trading platform and brokerage services. In general, trading platforms are either stand-alone (residing on the trader's computer) or web-based. Stand-alone applications tend to be more robust. However, web-based platforms offer the flexibility to trade from any location with an Internet connection. Many platforms offer both stand-alone and web-based options, allowing traders to choose the one that will suit his or her needs best.
Since the platform will be the trader's portal to the markets, it should be easy to learn and use, and should support reliable data feeds. Many e-mini traders execute trades frequently with the expectation of taking small profits on a regular basis. A bad data feed can mean the difference between being profitable and losing money. In addition, customer service and technical support must be taken into consideration. If the trader loses an Internet connection in the middle of a trade, he or she will want to be able to connect via phone to a live person immediately.
Depending on the trader's goals, he or she may also wish to look for a platform that has advanced features, such as the ability to back-test trading ideas on historical data, the ability to program custom indicators and strategies or one that supports fully automated trading.
SEE: Broker Summary: E-Trade Financial
E-mini traders, like those trading other instruments, have options when it comes to trade placement methodology. Traders may elect to place discretionary, semi-automated or fully-automated trades.
Figure 10: An automated stop-and-reverse strategy applied to the five-minute TF. The blue arrows represent long trades; the red arrows show where the strategy took a short position.
While a fully automated system does remove the emotion from trading and allow the trader to thoroughly evaluate an idea before risking real money, it does not allow the trader to press the "Go" button and leave to play golf for the day (as many traders wish it would). The platform and trading system still needs to be monitored because Internet connections can be lost, or an order could get a partial fill, leaving an unattended order in the market. Things can and do go wrong with fully automated systems, and it is in the trader's best interest to monitor the system.
Because of the technical nature of the e-minis, they are well-suited to fully automated trading systems that are based on quantifiable conditions and filters. Many e-mini traders choose to semi- or fully-automate their trading strategies to take the emotion out of trading, avoid pilot error and employ a system that has proven itself during historical testing.
SEE: The Pros And Cons Of Automated Trading Systems
One of the most attractive features of the e-minis is the low margin. A trader can buy and sell e-mini contracts with a relatively small trading account, such as $2,000 for example. If a trader can reliably make (on average) one point on the TF during a trading session (one point = $100), adding more contracts can multiply the trader's winnings. Since margin rates are typically low, the additional contracts can be traded for a small investment.
As traders gain confidence and develop profitable systems, position sizing can be utilized to increase the potential for profits. Of course, additional contracts also increase the potential for losses, so position sizing techniques should be utilized cautiously, and only once a system has proven that it can be profitable over time.
A trading strategy in which an investor buys a long position ...
A standard agreement used in over-the-counter derivatives transactions.
A combination of an interest rate swap and a currency swap in ...
Futures contracts based on movie receipts at the box-office. ...
A zero-cost currency forward contract that uses a range of exchange ...
An algorithm designed to maximize the expected return of a portfolio. ...
Backwardation is a market condition in which a futures contract far from its delivery date is trading at a lower price than ...
Gold has been a stellar performer so far in this millennium, having racked up 11 straight years of gains since 2000 and appreciating ...
The foreign exchange market, also called the currency market or forex (FX), is the world's largest financial market, accounting ...
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ...