Investor's wiki
en English
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy

E-mini S&P 500

E-mini S&P 500
TradingStock Trading

What Is the E-mini S&P 500?

The term E-mini S&P 500 refers to an electronically-traded futures and options contract on the Chicago Mercantile Exchange (CME). Launched by the CME in 1997, the E-mini S&P 500 is open to all investors. It allows them to hedge their bets or speculate on the price movements of the S&P 500 index. The contract is cash-settled and is priced at $50 times the value of the S&P 500. Its value is one-fifth of the now-delisted standard-sized S&P 500 futures contract.

Understanding the E-mini S&P 500

The S&P 500 index tracks the 500 largest U.S. publicly traded companies by market value and is one of the most common benchmarks for the broader U.S. equity markets. Futures are financial contracts that obligate the trader to buy or sell an asset at a predetermined price by a set date. Futures contracts detail the quality and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Some futures contracts might call for physical delivery of the asset, while others are settled in cash.

The CME developed a series of standard contracts that were typically simply available to institutional investors. With more investors seeking alternative investment options, the exchange launched a smaller set of futures contracts called E-mini. They make futures trading accessible to a variety of traders, including retail investors.

E-mini contracts are traded on the CME and other international exchanges. They cover a variety of assets, including:

  • Indexes: S&P 500, Dow Jones Industrial Average (DJIA), Nasdaq 100, Russell 2000, FTSE 100, Hang Seng
  • Commodities: Oil, wheat, copper, gold, soybeans, natural gas, corn
  • Currencies: Euro

The contract size of an E-mini 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 has a contract size of $50 times the value of the S&P 500. So in the event that the S&P 500 is trading at 2,580, the value of the contract would be $129,000 ($50 x 2,580).

To trade E-minis, investors must open an account with a brokerage firm. As noted above, traders often use the E-mini S&P 500 to hedge their bets on the index or to speculate on movements. Also, because they offer nonstop trading, low volatility, margin rates, liquidity, and greater affordability, numerous active traders view the E-mini S&P 500 as an ideal trading instrument for the index.

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

Special Considerations

All futures strategies are possible with E-minis, including spread trading. This is a strategy that investors and traders can use to speculate on financial markets. A spread is the difference between a buy and sell price. The smaller the spread, the cheaper the trade. Conversely, a larger difference between prices indicates a more expensive trade.

E-mini trading volumes eclipsed those of the standard contract when it was delisted, demonstrating the E-minis fame among individual and institutional investors alike. Both favored the E-mini for its high liquidity and the ability to trade a substantial number of contracts.

The S&P 500 E-mini can move rapidly, especially during high-influence news releases, so it's constantly recommended that traders have fundamentally more than the minimum required day trading margin in their account to help stay away from margin calls or having positions liquidated by the broker.

Numerous traders suggest that simply 1% to 2% of account equity ought to be risked on any single trade. In this case, the trader is risking $525. Therefore, if they need to keep the risk to 1% to 2% of their account balance, they ought to have no less than $26,250 to $52,500 in their account ($525 x 50 and $525 x 100).

E-mini S&P 500 Contract Specifications

The E-mini S&P 500 trades on CME Globex under ticker ES. It has standardized specifications, which allows for easy trading. Electronic trading takes place between 6 p.m. Sunday and 5 p.m ET. Friday with a daily maintenance break between 5 p.m. also, 6 p.m. ET.

Contracts are available quarterly with March, June, September, and December expiry dates. They are financially-or cash-settled contracts, and that means traders receive a cash credit or debit based on the contract's settlement price. Accordingly, the S&P index or stocks needn't bother with to be delivered assuming that the contract is held until expiration.

As mentioned in the previous section, the value of the contract is $50 x the S&P 500 index value. What matters to most traders is the minimum price change and tick value, as this 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.

History of the E-mini S&P 500

The CME introduced the standard-sized stock index futures contract in 1982. This first contract was based on the S&P 500 and traded on the CME under the Globex ticker SP. The price for the full-sized contract was $250 times the value of the S&P 500. This means assuming the index value was 2,500, the contract was worth $250 times that amount, or $625,000.

This was great for large, institutional investors who used the standard contract as a hedge or a speculative tool. However, the value of the full-sized S&P 500 contract was too large for most small traders, a significant number of whom were interested in these contracts as alternative investments.

In response to this demand, the CME launched the primary E-mini contract in September 1997. Like the standard-sized contract, the main E-mini was based on the S&P 500. Its value was one-fifth that of the full-sized contract.

The two contracts functioned in the same fashion. Investors and traders used them both for hedging and speculating. The E-mini just opened up the landscape for smaller investors to take part.

The daily settlement prices for the E-minis are essentially the same as those of the regular-sized contract, however they might differ somewhat because of rounding. This means that 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 CME delisted the standard-or full-sized contracts for S&P 500 futures and options in September 2021.

Example of an E-mini S&P 500 Trade

Let's assume that the S&P 500 is trading at 2,965 and a trader seeks a breakout above the 2,970 on the E-mini S&P 500 where a short-term resistance area has formed. That's what they believe in the event that the price can break above that level, it will travel to 3,000.

When the price moves above 2,970, they purchase one contract. Expecting they get a price of 2,970.50, they place the following:

  • 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 ($50 x 10.5).
  • A limit order to sell at their target level of 3,000. Assuming the target is reached, the profit is $1,475 ($50 x (3,000 - 2970.50).

The trader isn't required to buy the full contract, which has a value of $148,525 ($50 x 2,970.50) at the time of purchase. They must instead just put up a margin. In the event that the trader just clutches the position for the afternoon, they are simply required to post a day trading margin. For certain futures brokers, this can be pretty much as low as $400.

In this case, the trader could lose $525 on the trade, plus commissions, so assuming the margin is $400, the trader would need to have no less than $925 plus the cost of commissions in their account.

Highlights

  • It was the primary E-mini index futures contract launched by the CME in 1997.
  • It offers ease of trading, low volatility and margin rates, liquidity, as well as greater affordability
  • The S&P 500 E-mini is a futures contract that is based on the S&P 500 index.
  • Investors and traders can use these contracts as a hedge or a method for speculating on the index's movement.
  • The E-mini S&P 500 is priced at $50 times the value of the index.

FAQ

How Does the E-mini S&P 500 Work?

The E-mini S&P 500 is a derivatives contract based on the S&P 500 index. It is open to an investor, including individual and institutional investors. The contract allows investors to hedge or speculate on the movement of the index. Contracts are priced at $50 times the value of the S&P 500 and are available quarterly. E-mini index futures are cash-settled, and that means you receive a credit or debit rather than delivery of the underlying asset.

What Is the Size of the E-mini S&P 500 Futures Contract?

E-mini S&P 500 futures contracts are valued at $50 times the S&P 500. So assuming the S&P is trading at 2,000, the contract value is $50 x 2,000, or $100,000.

How Might I Trade E-mini S&P 500 Futures?

To trade E-mini S&P 500 futures, you must open an account with a brokerage firm. Once you do that, choose your trading strategy and monitor the market until the contract's expiration date.