What Is the S&P 500 Mini?
The E-mini S&P 500 is an electronically-traded futures contract on the Chicago Mercantile Exchange (CME) representing one-fifth of the value of the standard S&P 500 futures contract.
- The S&P 500 mini, called the S&P 500 E-mini, is a futures contract worth 1/5 the value of a standard S&P 500 futures contract.
- S&P 500 E-minis have become the primary futures trading vehicle for the S&P 500, dwarfing volume in the standard S&P 500 futures contracts.
- The value of the E-mini is $50 x S&P 500 index value, and the tick size and value are 0.25 and $12.50.
Understanding the S&P 500 Mini
The Standard & Poor's 500 Index, or S&P 500, is an index tracking the 500 largest U.S. publicly traded companies by market value. The S&P 500 is a market capitalization-weighted index and one of the most common benchmarks for the broader U.S. equity markets.
All futures are financial contracts obligating the buyer to purchase an asset, or the seller to 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; they 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.
The value of the full-sized S&P 500 contract had become too large for most small traders so the first E-mini contract—the E-mini S&P 500—began trading on September 9, 1997. Its value was one-fifth that of the full-sized contract.
The E-mini made futures trading accessible to more traders. It quickly became a success, and today there are E-mini contracts that cover a variety of indexes, commodities, and currencies. The E-mini S&P 500, however, remains the most actively traded E-mini contract in the world.
The daily settlement prices for the E-minis are essentially the same as those of the regular-sized contract, though they may differ slightly because of rounding (resulting from differences in the minimum tick sizes between the E-mini contracts and full-sized contracts). A position with five E-mini S&P 500 futures contracts has the same financial value as one full-sized contract in the same contract month.
The contract size is the value of the contract based on the price of the futures contract times a contract-specific multiplier. The E-mini S&P 500, for example, has a contract size of $50 times the S&P 500 Index. If the S&P 500 is trading at 2,580, the value of the contract would be $129,000 ($50 x 2,580).
E-minis Versus Full-Sized Futures
There really is nothing a full-sized contract can do that an E-mini cannot do. Both are valuable tools traders that investors use for speculating and hedging. The only difference being that smaller players can participate with smaller commitments of money using E-minis.
All futures strategies are possible with E-minis, including spread trading. And E-minis are now so popular that their trading volumes are significantly greater than those of full-sized futures contracts. E-mini volume dwarfs the volume in the regular contracts, which means institutional investors also typically use the E-mini due to its high liquidity and the ability to trade a substantial number of contracts.
Contract Specifications of the S&P 500 E-Mini
Trading on the CME, the S&P 500 E-mini has standardized specifications, allowing for easy trade.
The value of the contract is $50 x the S&P 500 index value. What matters to most traders is the minimum price fluctuation and tick value, as this is what determines profit or losses on the contract. The E-mini moves in 0.25 point increments, and each one of those increments equates to $12.50 on one contract. Therefore, a one-point move, which is four ticks, means $50 is gained or lost.
Contracts are available with March, June, September, and December expiries.
They are financially settled contracts, meaning the S&P index or stocks don't need to be delivered if the contract is held until expiration.
Electronic trading takes place between 6 p.m. Sunday and 5 p.m. Friday, with a trading halt between 4:15 and 4:30 p.m.
Example of an S&P 500 E-mini Trade
Assume a trader is watching for a breakout above the 2,970 on the S&P 500 E-mini, where a short-term resistance area has formed. The trader believes that if the price can break above that level it will travel to 3,000.
The price is currently trading at 2,965. When the price moves above 2,970 they will buy one contract. Assume they get a price of 2,970.50. They place a stop loss at 2,960, resulting in a risk of 10.5 points. Each point is worth $50, so the risk to the trader is $525 (10.5 x $50).
The trader also places a limit order to sell at their target level of 3,000. If the target is reached, the profit is $1,475 ((3,000 - 2970.50) x $50).
The trader is not required to buy the full contract, which has a value of $148,525 (2,970.5 x $50) at the time of purchase. Rather the trader must only put up margin. If the trader is only holding onto the position for the day, they are only required to post day trading margin. With some futures brokers, this can be as low as $400. In this case, the trader could lose $525 on the trade, plus commissions, so if the margin is $400 the trader would want to have at least $925, plus the cost of commissions, in their account. The S&P 500 E-mini can move quickly, especially during high-impact news releases, therefore it is always recommended that traders have significantly more than the minimum required day trading margin in their account, as this will help avoid margin calls or having positions liquidated by the broker.
If holding overnight, the CME requires that traders have at least $6,300 in maintenance margin in their account to hold the contract.
Many traders suggest that only 1% to 2% of account equity should be risked on any single trade. In this case, the trader is risking $525. Therefore, if they want to keep risk to 1% to 2% of their account balance, they should have at least $26,250 to $52,500 in their account ($525 x 50 and $525 x 100).