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

E-mini traders enjoy relatively low costs in terms of commissions, exchange execution and clearing fees. Commissions vary by broker. TradeStation, for example, offers a sliding commission schedule based on trading activity. If you trade less than 300 contracts per month, the commission is $1.20 per side, per contract – meaning you’ll pay $1.20 per contract to get into the trade and $1.20 per contract to get out of the trade (collectively known as a "round-trip" trade). Commissions drop to as little as $0.25 per side, per contract if you trade more than 20,000 contracts per month. Exchange execution and clearing fees add another $1.18 per side, per contract. Non-exchange members pay an additional NFA Regulatory Fee of $0.01 per contract.

In addition to fees and commissions for trade executions, you may have to pay monthly subscription fees to receive relevant data feeds.

Trading Platforms

Trading platforms are where you research, buy, sell and manage your trading positions. They often go hand in hand with brokers: TradeStation, for example, offers both a professional trading platform and brokerage services. Depending on your platform and/or brokerage, you may have access to desktop (downloadable), web-based and/or mobile trading platforms. In general, desktop versions tend to be more robust. Still, web-based and mobile platforms offer the flexibility to trade from any location with an Internet connection.

Since the platform is your portal to the markets, it should be easy to learn and use, and should support reliable data feeds (such as CME data). Many e-mini traders execute trades frequently with the expectation of taking small profits on a regular basis. A bad data feed can mean the difference between making a profit and losing money.

Depending on your goals, you may want a platform that has advanced features, such as the ability to back-test trading ideas on historical data, the ability to program custom indicators and strategies or one that supports fully automated trading. It’s important to do your homework and research the various brokers before making any decisions. (To learn more, see Investopedia’s Online Broker Reviews.)

Trading Techniques

E-mini traders, like other traders, have options when it comes to trade placement methodology. You can elect to place discretionary, semi-automated or fully-automated trades.

Discretionary

Many traders start out as discretionary traders, making entry and exit decisions based on non-quantifiable data (such as advice from a perceived expert, observations and intuition). Discretionary traders watch the markets and look for trading opportunities, but ultimately use discretion (thus the name) when deciding whether to place a trade. Two of the biggest challenges for discretionary traders is dealing with emotions and making order entry mistakes.

Semi-Automated

A semi-automated trading method typically involves using discretionary methods to enter trades, while relying on automated signals to exit positions. For example, you might enter a long position once price breaks above a trendline. Then, as soon as the trade entry is filled, your trading platform automatically enters two orders: a profit target and a protective stop-loss order in case the trades moves against you.

Automated

Fully automated trading occurs when your platform performs all trade executions based on a customized trading strategy or a commercially available system. To develop a custom strategy, can program in the platform's proprietary language (such as TradeStation's EasyLanguage) or work with a qualified programmer.

The development process involves identifying absolute, objective trading conditions, back- and forward-testing to determine the system's potential, optimization and, if all goes well, implementation in a live market. The following chart illustrates a fully automated stop-and-reverse strategy applied to the 5-minute ES contract. (For related reading, see The Pros and Cons of Automated Trading Systems.)

 

 

An example of an automated strategy. The blue arrows show where the system entered long trades; the red arrows show where the strategy took short trades. Image created with TradeStation.

While a fully automated system removes the emotion from trading and allow you to thoroughly evaluate an idea before risking real money, it has limitations. In particular, you can’t press the "Go" button and leave for the day to play golf (as many traders wish it would). The platform and trading system still need to be monitored because Internet connections can be lost, or an order could get a partial fill, leaving an unattended order in the market. Things can and do go wrong with fully automated systems, and it’s in your best interest to monitor the system. 

Because of the technical nature of the e-minis, they are well-suited to fully automated trading systems that are based on quantifiable conditions and filters. Many e-mini traders choose to semi- or fully-automate their trading strategies to take the emotion out of trading, avoid pilot error and employ a system that has proven itself during historical testing. (For more, see Pinpoint Winning Trade Entries with Filters and Triggers.)

Position Sizing

One of the most attractive features of the e-minis is the low margin requirements. You can buy and sell e-mini contracts with a relatively small trading account, such as $4,000 (depending on the contract and your broker). Once you are seeing consistent profits, you can trade more contracts at the same time to multiply your winnings. Since margin rates are typically low, the additional contracts can be traded for a small investment. Of course, additional contracts also increase the potential for losses, so position sizing techniques should be utilized cautiously, and only once a system has proven it can be profitable over time. (For related reading, see Sizing a Futures Trade Using Average True Range.)


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