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E-Mini Index Futures 101 – Basic Overview of E-Mini Products and General Trading Ideas

E-Mini Index Futures 101 – Basic Overview of E-Mini Products and General Trading Ideas

If you are interested in trading the future markets then chances are you heard about the E-Mini index futures. These products have a lot of opportunities and they are also highly liquid. In this article we will focus on three of the most successful E-Mini indexes:

  1. ES or the S&P 500 mini contract.
  2. YM or the Dow Jones Industrial Average mini contract.
  3. NQ or the NASDAQ 100 mini contract.

The three contracts above are considered to be the most successful E-Mini products that the exchanges have ever created. They are trades by just about everyone from ex Chicago floor traders to hedge funds all the way to the big banks. Some of the attraction to these products is the liquidity and low margin rates needed to control a larger part of the market. Some basic contract information about these futures are:

  • Trading hours start on Sunday at 7PM EST through Friday 5:15 EST. It is a 24 hour a week market.
  • Many brokers have a $500 or less day trading margin.
  • Overnight margins are for most brokers are under $5,000.
  • Contract month abbreviations are H, M, U, Z, and that stands for March, June, September and December.
  • Expiration is on the third Friday of every month.

Most index futures base their prices on the index that they are meant to follow. As a new trader you should know that future contracts do follow the indexes but they sometimes are trading at a premium when the market goes up and at a discount when a market goes down. This happens because future contracts have time value built into the contracts. Most people who trade the E-Mini indexes do it based on the following:

  • Tape Reading
  • Charts
  • Fundamentals

Tape readers need to get access to the order book. Once a trader gets access the order book information then they need to spend enough time to get a gut feel for how these products trade. I have mentioned this countless times but tape reading is all about recognizing and understanding price behavior. It is simple learning how to read human emotions through watching an electronic online auction. It takes thousands of hours to master and there are no short cuts.

The E-Mini products are mostly traded by watching charts. This is the easiest way that most people learn how to trade because there are many tools and indicators that can help new traders analyze the market. These days there is everything from decades old technical analysis techniques all the way to fully automated trading programs that make all buying and selling decisions without the account holder’s permission.

Finally the index futures are sometimes traded by people who have a long-term outlook on the market. What a lot of funds do is buy or sell these index futures to lock in a certain market price. This is an excellent alternative for fund managers because it allows them to lock in prices and buy an entire index of stocks with a single transaction. Fund manager also use these future contracts so protect their portfolios during market down turns.

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