E-mini

What Is an E-mini?

The term E-mini refers to an electronically-traded futures contract that is a fraction of the size of a standard contract. E-minis are used to trade a variety of assets, such as commodities and currencies, but the most commonly traded assets using E-minis are indexes.

The Chicago Mercantile Exchange (CME) launched the first E-mini futures contract in 1997 to give individual investors, for whom standard contract sizes were often too expensive, access to the futures market. Like other futures contracts, E-minis are traded on the CME and other exchanges, and allow investors to hedge their bets or speculate on the price movements of the underlying asset.

Key Takeaways

  • E-minis are electronically traded futures contracts that are a fraction of the value of corresponding standard futures contracts.
  • These contracts are predominantly traded on the Chicago Mercantile Exchange and are available on a wide range of indexes, commodities, and currencies.
  • The first E-mini contract was launched in September 1997 and was based on the S&P 500.
  • Traders use E-minis as a hedging tool or to speculate on the price movements of the underlying assets.
  • Although E-minis are readily available and easily traded, they are limited in scope and may be highly volatile.

Understanding E-minis

All futures are financial contracts that obligate the holder to buy or sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.

Futures contracts were typically only accessible to institutional investors because of their size, which was often too large for small investors. The CME launched the first E-mini contract in 1997 to draw in average traders who were keen on taking part in this alternative investment. This first E-mini contract allowed traders to trade S&P 500 futures. Its value was set at one-fifth of the full-sized contract.

The E-mini quickly became a success and led to other similar contracts. There are now E-mini contracts that cover a variety of assets, including:

The E-mini S&P 500, however, remains the most actively traded E-mini contract in the world.

Just like other futures contracts, traders can use a single E-mini contract to hedge or speculate on broad market moves. Because they are traded electronically, E-mini futures contracts trade almost 24 hours a day between Sunday and Friday. Investors are required to open an account with a brokerage firm in order to begin E-mini futures trading.

The CME delisted the standard-sized S&P 500 index futures and options (on which the E-mini contract was based) in September 2021. This contract was worth $250 times the value of the S&P 500 Index. So if the index was 2,100, the contract would be worth $525,000.

E-minis vs. Full-Sized Futures

E-mini contracts aren't that much different than full-sized futures contracts. These smaller contracts also allow investors to hedge or speculate on price movements of the underlying asset, whether it's an index, commodity, or currency.

As such, investors can achieve their trading strategies with E-minis, including spread trading. And E-minis are so popular that their trading volumes eclipse those of full-sized futures contracts.

E-mini S&P 500 Futures Contract Specifications

As noted above, the E-mini contract was created to be one-fifth of the size of the standard-sized contract. The contract size is the value of the contract based on the price of the futures contract times a contract-specific multiplier.

For instance, the E-mini S&P 500 has a contract size of $50 times the value of the S&P 500. If the S&P 500 trades at 2,580, the value of the contract is $129,000 ($50 x 2,580). This means that a 0.25 point change in the S&P 500 index has a monetary value of $12.50.

The E-mini S&P 500 trades under the Globex ticker ES. As noted above, it is available on the CME nearly 24/7 from Sunday to Friday, 6 p.m. to 5 p.m. ET with a temporary trading halt between 5 p.m. and 6 p.m. ET. Contracts are quarterly (March, June, September, December) and are listed for nine consecutive quarters as well as three additional December contract months.

IRS Form 6781 stipulates that any gains from futures contracts traded on a U.S. exchange, foreign currency contracts, dealer equities options, dealer securities futures contracts, or non-equity options contracts are taxed at a combination of the long-term and short-term capital gains rates. 60% is treated as long-term gain and 40% is treated as short-term gain regardless of the length of the contract.

Advantages and Disadvantages of E-minis

Advantages

E-minis are ideal trading instruments for active traders because they offer round-the-clock trading, low margin rates, volatility, liquidity, and greater affordability than standard contracts.

Another benefit is that the fees associated with trading E-minis are typically lower than those linked to the buying and selling of regular securities.

Disadvantages

As with any financial instrument, E-minis also have their downsides. For example, because of their round-the-clock and electronic trading component, the price of E-minis can move very quickly.

Another downfall to these alternative investments is their limited scope. The selection of available e-mini contracts can be limited and doesn't necessarily span as wide an array of assets as, say, an exchange-traded fund (ETF) or mutual fund.

Pros
  • Low costs and affordable

  • Nearly 24/7 trading

Cons
  • Highly volatile

  • Limited selection of contracts

What Is an E-mini S&P 500?

The E-mini S&P 500 is an electronically traded futures contract that is one-fifth the size of now-delisted standard S&P futures. Its futures and options are based on the underlying S&P 500 stock index. Consisting of 500 individual stocks representing the market capitalizations of large companies, the S&P 500 is a leading indicator of large-cap U.S. equities. The E-mini S&P 500 contract trades under the Globex code ES.

How Much Does an E-mini S&P 500 Contract Cost?

The E-mini S&P 500 is priced at $50 times the value of the S&P 500. This means if the S&P 500 is at 2,500, the value of the contract is $50 x 2,500 or $125,000.

How Much Money Do You Need to Trade E-mini Futures?

There is no legal minimum on what balance you must maintain to day trade futures, although you must have enough in the account to cover all day trading margins and fluctuations which result from your positions. These can vary by broker however some require as little as $500 to open an account.

How Much Is a Micro E-mini Futures Contract?

As the name suggests, micro E-mini futures offer investors an even cheaper futures contract than E-minis. Whereas the E-mini S&P 500 has a contract price of $50 times the S&P 500, the micro E-mini's contract price is $5 times the index.

Article Sources
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  1. Chicago Mercantile Exchange. "Timeline of CME Achievements."

  2. Federal Reserve Bank of New York. "The Overnight Drift," Page 6.

  3. CME Group. "E-mini S&P's - The Ultimate Index?."

  4. CME Group. "E-mini S&P 500."

  5. CME Group. "Conclusion of Standard S&P 500 Futures and Options Trading."

  6. The University of Tennessee, Legal Scholarship Repository. "The Regulation of Equity Index Futures," Page 24.

  7. CME Group. "Welcome to E-mini S&P 500 Futures."

  8. CME Group. "E-mini S&P 500 Contract Specs."

  9. Internal Revenue Service. "Form 6781," Pages 1, 2.

  10. CME Group. "Micro E-mini S&P 500 Index Futures - Contract Specs."

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