1. Beginner's Guide To E-Mini Futures Contracts: Introduction
  2. Beginner's Guide To E-Mini Futures Contracts: What Are The E-Minis?
  3. Beginner's Guide To E-Mini Futures Contracts: E-Mini Characteristics
  4. Beginner's Guide To E-Mini Futures Contracts: E-Mini Specifications
  5. Beginner's Guide to E-mini Futures Contracts: Popular E-mini Contracts
  6. Beginner's Guide To E-Mini Futures Contracts: Who Trades The E-Minis?
  7. Beginner's Guide To E-Mini Futures Contracts: Trading The E-Minis
  8. Beginner's Guide To E-Mini Futures Contracts: Other E-Mini Contracts
  9. Beginner's Guide To E-Mini Futures Contracts: Volume and Volatility
  10. Beginner's Guide To E-Mini Futures Contracts: Margins
  11. Beginner's Guide to E-Mini Futures Contracts: Rollover Dates and Expiration
  12. Beginner's Guide To E-Mini Futures Contracts: Brokers
  13. Beginner's Guide To E-Mini Futures Contracts: Tax Advantages

The characteristics that help define the e-minis also make them attractive trading instruments. 

Volume

Volume refers to the number of shares or contracts that are traded during a specified period of time. The average daily volume (ADV) is the number of shares or contracts that are traded each day, on average, during a particular time period. The ES is the most actively traded stock index futures contract, with over 1.4 million contracts traded on average per day. According to the CME Group's Leading Products Q3 2017 report, the average daily volume for the top e-minis during the third quarter of 2017 was as follows: 

  • ES = 1,401,456 
  • NQ = 314,373 
  • YM = 121,629 
  • RTY = 59,316

The following charts compare the daily volume for the ES, NQ, YM and RTY. While the volume levels in the histograms may look similar across the contracts, note the actual volume figure in the bottom right corner of each chart. The ES dominates the volume with more than 2 million contracts on certain days.

 

Daily volume comparison for the ES, NQ, RTY and YM e-mini contracts (note that the RTY traded under low volume during July and August as it transitioned to a new exchange). Image created with TradeStation.

(For more, see How to Use Volume to Improve Your Trading.)

Liquidity

Market liquidity describes the ability to execute orders of any size quickly and efficiently without causing a substantial change in the price of a given instrument. Liquidity can be measured in terms of:

  • Width: How tight is the bid-ask spread
  • Depth: How deep is the market (how many orders are resting beyond the best bid and best offer)? 
  • Immediacy: How quickly can a large market order be executed? 
  • Resiliency: How long does it take the market to bounce back after a large order is filled?

Markets with good liquidity tend to trade with tight bid-ask spreads and with enough market depth to get orders filled quickly – ideal conditions for active traders. Liquidity is important to traders because it helps ensure that orders will be:

  • Filled 
  • Filled with minimal slippage
  • Filled without substantially affecting price

The e-minis – especially the ES – trade with good liquidity, ensuring that traders can get in and out of positions quickly. (For related reading, see Understanding Financial Liquidity.)

Volatility 

Volatility measures the amount and speed at which price moves up and down in a particular market. When a trading instrument experiences volatility, it provides opportunities for investors and traders to profit from the change in price – whether it’s rising prices in an uptrend, or falling prices during a downtrend. Any change in price creates an opportunity to profit – after all, it’s difficult to make a profit if price doesn’t move. 

You can use technical indicators to determine the average range in price over a specified period. One easy way to do this is to apply a standard moving average to a price chart (placing the moving average in the panel below the price panel works best). To find the average price movement over the last 10 trading days, for example, set the moving average length input to 10, and the Price input to High-Low (usually, the moving average uses the closing price as the price input). This will calculate the average range (High-Low) over the last 10 trading sessions. The following chart shows this method applied to a daily chart of the ES.

Using a 10-day moving average to find the average price range of the previous 10 days. Image created with TradeStation.

The average daily range isn’t static. For example, the above chart shows that the ES traded with a higher range during August than throughout October 2017. E-mini traders often keep an eye on this range to determine if their strategies are viable and appropriate for current market conditions. In general, the average daily range of e-minis is attractive to active traders hoping to exploit intraday price movements. (For related reading, see How to Profit from Volatility.)

24-Hour Trading

The e-minis trade virtually round-the-clock on all-electronic platforms. This is appealing to traders across time zones or who have obligations that would prevent them from trading during regular market hours (i.e. 9:30 am to 4:00 pm EST). The top four e-mini stock index futures (ES, NQ, YM and RTY) trade on the CME Globex electronic trading platform from Sunday at 6:00 p.m. through Friday at 5:00 p.m. Eastern Time, with daily trading halts from 4:15 p.m. – 4:30 p.m. 

Affordability 

You can gain exposure to the indexes without the financial commitment required to enter a position in a full-sized contract. The e-minis offer attractive margin rates – meaning you can enter positions with a relatively small trading account. The various contracts have different margin rates, and these are adjusted frequently to reflect current volatility. The CME Group, for example, lowers margins in less volatile periods and increases margins during higher volatility. 

Initial margin is the margin you need when entering a position. Maintenance margin, on the other hand, is the minimum balance you have to keep in your account to avoid a margin call – a demand from your broker to deposit more money. Margin requirements vary by broker. (For more, see Margin Trading.)

Long and Short Trades

You can enter long and short positions with equal ease in the e-mini markets. In a long position, you buy to enter a trade and sell to close the trade, hoping to profit as prices climb. In a short position, you sell to enter the trade and buy (to cover) to close the trade, with the expectation that prices will fall. This means that the potential for profit exists in both rising and falling markets.

While many investors and traders choose to only enter long positions, the e-minis are well suited for executing both long and short trades and profiting from any market moves – regardless of direction. As long as there is adequate volatility (changes in price), you can theoretically make a profit. (For related reading, see The Basics of Short Selling.)


Beginner's Guide To E-Mini Futures Contracts: E-Mini Specifications
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