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

A wide variety of market participants are actively involved in trading the e-mini markets. 

Institutions

An institutional trader is an organization that invests on behalf of its members, such as mutual funds, pension funds, hedge funds and life insurance companies. Institutions typically trade extremely large positions, which qualifies them for preferential treatment and lower commissions. The great liquidity offered by the e-minis (particularly the ES) allows institutional traders to execute and liquidate positions without drawing a lot of attention. Institutional traders may also use the e-minis to hedge against the larger futures contract. (For related reading, see Introduction to Institutional Investing.)

Managed Funds

Managed funds are investment accounts that are operated by individual investors and overseen by hired professional money managers. Since managed funds typically rely on one or two proven strategies, the e-minis make prime instruments due to their technical nature. The e-minis are based on numerous stocks (rather than single stocks) and, as such, don’t tend to move in relation to one company's fundamental news. As a result, technical analysis is typically used to evaluate past and predict future price moves.

High Frequency Trading (HFT) Firms

High frequency trading firms seek to make money on extremely short-term trades. These firms utilize advanced electronic systems and complex algorithms to identify and execute trades rapidly. All positions are typically liquidated by the end of the day. Because high frequency trading depends on good volume and liquidity, the e-minis (again, particularly the ES) make ideal trading instruments. In addition, HFT firms may trade the e-minis because of their technical patterns and behavioral structures. (For more, see You’d Better Know Your High Frequency Trading Terminology.)

On a side note, high frequency trading is believed to have been a contributing factor in the infamous May 6, 2010 Flash Crash, in which the Dow Jones Industrial Average (DJIA) suddenly plummeted nearly 1,000 points (about 9%), and the ES dropped about three percent between 2:41 and 2:44 p.m. The following daily chart shows the ES during that time. Notice the extreme spike in volume that accompanied the move.

The May 6, 2010 Flash Crash pummeled the ES during three minutes of trading. The price move was accompanied by a huge spike in volume. Image created with TradeStation.

Retail Traders

Retail traders are individual traders who aren’t employed by institutions, funds or HFT firms. Working from an office or from home, retail traders attempt to earn a living by trading their own money. Most develop a particular trading style based on their level of trading experience, risk tolerance, account size, personality and the amount of time they can dedicate to trading. Trading styles can be defined by the time frame and holding period in which positions are opened and closed:

 

Trading Style

Time Frame

Holding Period

Position Trading

Long term

Months to years

Swing Trading

Short term

Days to weeks

Day Trading

Short term

Day only – no overnight positions

Scalp Trading

Extremely short term

Seconds to minutes – no overnight positions

 

Trading styles are defined by the time frame and holding period in which positions are opened and closed.

(For related reading, see How to Start Trading: Trading Styles.)


Beginner's Guide To E-Mini Futures Contracts: Trading The E-Minis
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