A wide variety of market participants are actively involved in trading the e-mini markets.

Institutional traders place high-value trades on behalf of an institutional investor, such as a mutual fund, pension fund, hedge fund, bank trust department or insurance company. Institutions typically have the ability to trade extremely large positions. The great liquidity offered by the e-minis (particularly the ES), allows institutional traders to execute and liquidate positions without drawing a lot of attention. Institutional traders may also use the e-minis to hedge against the larger futures contract.

SEE: Introduction To Institutional Investing

Managed Funds
Managed funds are investment funds operated by a single trader or group of traders, depending on the size of the fund. Since managed funds typically rely on one or two proven trading strategies, the e-minis make prime instruments due to their technical nature. The e-mini are based on numerous stocks (rather than a single stock) and, as such, do not tend to move in relation to one company's fundamental news. As a result, technical analysis allows e-mini traders to evaluate past and predict future price moves.

High Frequency Trading (HFT) Firms
High frequency trading firms seek to make money on extremely short-term trades. These firms utilize advanced electronic systems that allow them to identify and execute trades rapidly. All positions are typically liquidated by the end of the day. Because high frequency trading depends on substantial volume, the e-minis (again, particularly the ES) make ideal trading instruments. In addition, HFT firms may trade the e-minis because of their technical patterns and behavioral structures.

High frequency trading, which may have accounted for roughly 70% of equity trades in the United States in 2010, was blamed for the May 6, 2010 Flash Crash where the Dow Jones Industrial Average (DJIA) suddenly plummeted about 1,000 points (about 9%), and the ES dropped about three percent between 2:41 and 2:44 p.m. Figure 8 shows a daily chart of the ES during that time. Notice the extreme spike in volume that accompanied the move.

Figure 8: Flash Crash. The May 6, 2010 "Flash Crash" that pummeled the ES during three minutes of trading. The price move was accompanied by a huge spike in volume.

Retail Traders
Retail traders are individual traders who are not employed by institutions, funds or HFT firms. Working from an office or from home, retail traders attempt to earn a living by trading on a daily basis. Retail traders develop a trading style based on level of trading experience, risk tolerance, account size, personality and the amount of time available to dedicate to trading. Trading styles (shown in Figure 9) can be defined by the time frame and holding period in which positions are opened and closed:

Figure 9: Trading styles can be defined by the time frame and holding period in which positions are opened and closed.

SEE: 4 Common Active Trading Strategies

Next: Beginner's Guide To E-Mini Futures Contracts: Trading The E-Minis »

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