Intermediate Guide To E-Mini Futures Contracts - E-Mini Brokers
In order to trade any of the e-mini futures contracts, one must have an account with a brokerage firm that offers e-mini products. Since the e-mini stock index futures contracts discussed in this tutorial are, in fact, futures contracts, a futures account is necessary. This account will be separate from other account types (such as accounts for trading stocks or Forex). Many traders have multiple accounts so that they are able to participate in various markets.
When researching and selecting from among the dozens of brokerage firms that offer e-mini trading, it is important to take into consideration the following factors.
The National Futures Association (NFA) is the self-regulatory organization for the U.S. futures industry that develops rules, programs and services to maintain market integrity, protect investors and help NFA members meet regulatory responsibilities. The NFA regulates every firm or individual who conducts futures trading business with public customers.
Traders and investors can check the registration status and disciplinary history of any futures firm or individual by searching on the NFA Web site (www.nfa.futures.org). Searches can be executed based on NFA ID Number, Firm Name, Individual Name and Pool Name (for commodity pools only).
The Federal Reserve Board, FINRA and securities exchanges regulate margin trading.
Fees and Commissions
While fees and commissions do change from time to time, an up-to-date list can be found on any reputable broker's Web site (the sites will also list pertinent initial margin and maintenance margin rates). Futures commissions are charged on a per side, per contract basis. For example, if a trader enters a long ES position with five contracts, the commission will be based on the trade entry (one side) multiplied by the five contracts. An additional commission will be assessed when the trade is closed (the "other" side of the trade). Often, commissions are on a sliding scale depending on the number of monthly contracts that are traded. In general, the more contracts that are traded each month, the lower the commission rates will be for each contract.
In addition to commissions, traders must also take into consideration (and pay) exchange execution and clearing fees. These vary by market and instrument, and by the trader's exchange membership level. Exchange fees for the ES and NQ, for example, are $1.14 per side, per contract, with an additional NFA Regulatory Fee of 2 cents per contract for non-members (current as of July 1, 2012).
A brokerage firm's margin rates will also be listed on its website. As discussed in the "Margin" section of this tutorial, margin rates are set by the exchanges but can be tightened by individual brokerage firms. In other words, a firm can require more stringent margin rules, but can never allow more relaxed rates than those set by the exchanges. Like the exchange requirements, brokerage requirements can change from time to time and without notice.
Figure 7 shows a spreadsheet with TradeStation's margin requirements (current as of July 1, 2012 and subject to change). The figure is included to provide an example of the various margin rates for different e-mini products.
Figure 7 - TradeStation margin requirements for the ES, NQ, YM and TF contracts (current as of July 1, 2012 and subject to change).
Most, if not all, brokerage firms that offer e-mini trading provide clients with access to a trading platform. The trading platform is the trader's portal to the markets and typically provides real-time charting, technical and fundamental analysis tools, and an order-entry interface. A well-designed trading platform will be easy to use, visually pleasing, and will have the ability to be customized in terms of layout and colors. In addition, and of particular importance to active traders, a good trading platform will have clear 'buy' and 'sell' buttons that allow for easy order entry. This is vital to avoiding costly order-entry mistakes (commonly referred to as "pilot error"). Figure 8 shows an example of a robust trading platform that provides technical analysis tools and a variety of easy-to-use order-entry interfaces. In this example, a Chart Trader order entry interface allows traders to place buy and sell orders directly from the chart.
Figure 8 - This 5-minute chart of the NQU12 contract illustrates a trading platform that offers technical analysis tools as well as an easy-to-use order entry interface. Chart created with TradeStation.
Advanced features, such as the ability to backtest or create custom trading strategies that can be auto-traded, may also be important factors depending on the trader's specific needs. Most brokers offer free demo accounts that allow traders to experiment with the platform before opening and funding an account. In addition, many provide "simulated" accounts - hypothetical accounts with which the trader can conduct "paper" trades without risking real money in a live market.
Trade Execution Quality
Certain brokers list monthly statistics regarding trade execution quality and speed. Reliable and fast execution is paramount to achieving the best prices on trade entries and exits. Since some brokers boast fast execution speeds for institutional clients only, it is important for individual traders to determine the type of execution quality they can expect from a particular broker. When researching execution speeds, read the fine print: statistics should be provided by independent, third-party vendors that are not affiliated with the particular brokerage firm. Intermediate Guide To E-Mini Futures Contracts - Tax Advantages
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