Exactly What Is The E-Mini S&P 500

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Here's a brief description and background on the E-Mini/S&P 500 futures contracts, since we get asked practically every day what they are. We know you'll find this to be helpful in understanding the E-Mini & S&P 500 markets much better.

A Brief Introduction

The Chicago Mercentile Exchange (CME) introduced the S&P 500 futures contract back in spring of 1982. The S&P 500 futures market has now become today's most actively traded equity futures contract. The S&P 500 futures contract represents roughly 90% of all US stock index futures trading. The S&P 500 is comprised of the largest 500 listed stocks, therefore allowing you to easily and effectively buy or sell an extremely well diversified portfolio of stocks in one stock index futures contract. This allows you to make trading/investing decisions based on your overall outlook of the stock market. Here's a couple advantages of trading the S&P 500 & E-Mini stock index futures contracts:

- You can easily participate in broad market moves, with one trading decision (one chart to look at) - instead of having to choose individual stocks (looking at many charts).

- You can easily protect the value of a portfolio during adverse markets without incurring high transaction fees.

In October 1997 the E-Mini S&P 500 futures contract (symbol = ES) was introduced - which is the same as the S&P 500 (symbol = SP), except it's one fifth the size in terms of point and tick size, discussed shortly.

Exactly What Is The S&P 500 Index?

Most all of you know what the Dow Jones Industrial Average (DJIA) Index consists of; The DJIA is made up of only 30 blue chip stocks. The S&P 500 index on the other hand is based on the stock prices of 500 different companies - generally 76% industrials, 12% financial institutions, 10% utilities and 2% transportation. As you can readily see, the S&P 500 is much more representative of the overall market than that of the DJIA. Also, the market value of the 500 firms that comprise the S&P 500 index is equal to roughly 80% of the value of all the stocks that are traded on the New York Stock Exchange.

The Value Of The S&P 500 Futures Contract

The value of the S&P 500 futures contract can be calculated by multiplying the futures price by $500. For example, if the S&P's are trading at 1089.50, the value would then be $500 X 1089.50, or $544,750. The minimum price fluctuation (tick) for the S&P's are .10, so a tick up or down is worth $25 per contract. A full point has 10 ticks in it, which is worth $250 per contract (.10 X $25 = $250). The E-Mini S&P 500 is on the same price scale as the regular (full) S&P 500, the difference lies in the tick and point values. The E-Mini S&P trades in .25 ticks and is worth $12.50 per tick; and a point is worth $50
($12.50 X 4 = $50). As you can see the E-Mini's are one fifth the size of the full S&P 500 contract.

As you can readily see by now, since the S&P 500 futures market represents roughly 90% of all US stock index futures trading, you can use the S&P 500 futures contract to try and forecast the market's overall direction. You can in turn position yourself with a profit from such a move. That is, of course, if you're right on the market move.
What Are Futures Contracts?

A future's contract is an agreement between the seller and buyer to respectively deliver and take delivery of a commodity at a specified future date. But in the case of the S&P 500 futures contract, the commodity is a portfolio of stocks represented by a stock price index. The delivery is actually a cash settlement of the difference between the original transaction price and the final price of the index at the termination of the contract. More accurately, the cash settlement occurs in the increments daily until the termination of the contract, as the contract trading price changes.

The futures contract price responds to the changes in the overall underlying index, with the index recalculated as the component stock prices change. The prices of the futures contract looks very similar to the index price itself; the future's price may be higher or lower than the index itself. While the future's price does not move point-for-point with the index, it does track it closely enough to act as a very effective proxy.

How Much Does It Cost To Trade The E-Mini's & S&P 500?

The margin requirements to trade the S&P 500 is quite small compared to the overall value of the contract itself. Margin requirements to keep the S&P 500 Overnight (you need roughly $22,000 per contract to keep an S&P overnight) is much more costly than it is to Day Trade the S&P 500 (you need roughly $10,000 per contract to day trade), but it really depends on the discount futures house that you trade through. The firm I recommend only requires $5,000 to day trade the S&P and $12,000 to keep an S&P overnight. The E-Mini S&P's on the other hand are much less expensive to trade. It costs roughly $2,500 to day trade the e-mini S&P's and roughly $7,500 to keep an e-mini S&P overnight. We highly recommend to all students to start off trading the e-mini S&P's (if you ever decide to trade them) until you fully understand what they're doing before moving on to the full S&P 500 contract. We think that's a smart move for anyone just starting out.

Future's Risk

Please Remember: Trading the E-Mini's & S&P 500 markets (or any market for that matter) are not without risk and as a trader/investor you must accept the possibility of being incorrect in your predictions (trades) of the market. The opportunity to profit from trading futures can be very substantial, however keep in mind that the risk of trading futures can also be very substantial. And please remember, any market you decide to trade you must use stop losses (ISL's) - as you already know by now this will help limit your losses to your own personal comfort level (and to what is taught in this course).

"Why trade the full and E-mini S&P 500/Dow or Nasdaq futures markets?" There are a lot of reasons why, here's just a few of them:

- There is NO market research required.
- Futures margin requirements are a fraction of those needed for day trading stocks ($2,000 vs. $25,000).
- You can profit no matter which way the market moves, up or down. Bad market news can be real good news to you.
- Great potential for daily cash flow.
- Tremendous leverage, liquidity and daily volatility for maximum profit potential.
- There is NO Up tick rule.

Poo

this is better one :

What are S&P 500 Index futures?

Equity traders entering the futures markets for the first time should consult the excellent information available from the Chicago Mercantile Exchange (CME). Also, many futures brokers can provide you with the specifics of the contracts and give you all the details you need about risk/reward, leverage, and the capital required to trade the contract.

The CME offers two sizes of the S&P 500 contract: the standard "big" futures contract and the S&P 500 "e-mini" contract. The standard contract is what the institutions and commercials trade, and the majority of these trades are done using the "open outcry" auction system in the pits of the Chicago Mercantile. This contract is known variously as the Big S&P, the Big Car, SPoos,etc. -- and the trading in this big contract sets the tone for the entire stock market. Most of the analysis we do at Mohan's Market Force - Daily Directional Forecast is based on the trading in this contract.

For actual trading, our numbers focus on the e-mini contract. The "e" stands for "electronic," as this contract is exclusively traded on the CME's electronic, GLOBEX platform; and the "mini" represents the fact that this contract is one-fifth the size of the big contract.

At one-fifth the size, the e-mini is more affordable to retail traders, with lower day-trading margin requirements. This contract is traded electronically, resulting in high volume action, with volatility spikes beyond the range set by the big S&P for short periods. But generally the price action tends to follow that of the big S&P contract very closely.
But...what exactly is the e-mini contract?

The E-mini S&P 500 futures are legally binding agreements to buy or sell the cash value of the S&P 500 Index at a specific future date. The contracts are valued at $50 * the futures price. For example, if the e-mini S&P 500 futures price is at 920.00, the value of the contract is $46,000 ($50 * 920.00).

This also means that the value of the contract changes with every point the futures move. If the futures price is 922.00, then the contract is worth $46,100 ($50 * 922.00). If it slips to 918, the contract is worth $45,900 ($50 * 918.00). If you own or short an e-mini futures contract on the S&P 500, you are gaining -- or losing -- $50 per point.

Like all commodities futures, you are required to only put up a fraction of the contract value to actually take a position. This amount is popularly called "margin," but it is unlike the margin requirements in stock trading. It is not even margin, but rather a "performance bond," in which you agree to honor the terms of the contract by either offsetting it before expiration or making a cash settlement. The amount of the performance bond is specified by the CME. Currently it is about $3,500 per contract (See table below).

If the market moves against your position, you may be required to add additional funds to maintain the necessary bond levels. Please consult your broker for his house rules for posting the bonds (margin), and always strive to be aware of your liabilities and obligations.
Ticks

The minimum price movement of a futures contract is called a "tick." The tick value for the e-mini S&P is 0.25 index points, or $12.50 per contract. This means that if the e-mini moves the minimum price increment (one tick), say, from 920.00 to 920.25, a long (buying) position would be credited $12.50; a short (selling) position would be debited $12.50.

Trading this contract offers tremendous leverage, which is also a double-edged sword. Relatively small amount of capital can result in huge percentage gains -- but it can also quickly result in big losses and total wipeouts. Often this catches traders migrating over from equities by surprise. Futures trading requires vigilance, discipline, and fortitude.

With the normal day-trading margin of $2,000, one of our typical 8-10 handle (see the upcoming section, "What is a point?" for explanation of the term handle) trades will net you a $400 to $500 gain, before commissions and fees. That is a 20% to 25% return. To get yourself really excited, you can annualize the return. But we're not going to do that! Instead, we will point out that it's just as easy to lose all your capital and end up owing money to your broker.

The need for discipline cannot be emphasized enough when trading the e-mini.
Contract Months

E-mini S&P 500 contracts are cash-settled, just like the standard S&P 500. There is no delivery of the individual stocks. Just like the big S&P, e-mini contracts also expire quarterly. E-mini S&P 500 daily settlements and quarterly expirations will use exactly the same price as the S&P 500, thus benefiting from the liquidity of the big S&P 500 futures.

S&P 500 Index futures contracts expire each quarter, always on the third Friday of March, June, September and December. Contracts with several expirations are traded simultaneously. Mohan's Market Force - Daily Directional Forecast focuses only on the leading month contract, which is by far the most actively traded.



E-mini S&P 500 Index Futures

Ticker ES
Contact Size $50 times e-mini S&P 500 Index futures price
Tick Size 0.25 Index point or $12.50 per contract
Months  March, June, September & December
Trading Hours From 5:30pm CT Sunday to 3:15pm CT Friday
Expiry Third Friday of the contract month
Rollover Thursday a week before the expiration Friday. The next contract month becomes the "lead contract" or the "front month." The new contract will be the day-trading vehicle from this day, even though the previous contract continues to trade until expiration date

Margin/Bond
Exchange minimum: $3,563
Maintenance: $2,850
Day-trading margins can be as low as $1,700/contract, per your broker's requirements


Ticker symbols are created by combining the base symbol ES, the contract month and contract year. Month codes are:

                                                H=March
                                                M=June
                                                U=September
                                                Z=December

Therefore the ticker for the June 03 contract is ESM03

The symbol for the big car is SP and is built up the same way: SPM03
So how many shares do you buy?

This is a common question from equity traders when they start looking into futures. The answer is: You don't. Just like options contracts, you buy single or multiple contracts. Most beginning traders and many experienced traders only trade a single contract -- "the one lot." If you are a beginning futures trader, it is important to establish a consistently-profitable method, over a period of time, before increasing lot size. In other words, start small!
Trading ‘round the clock...

Except for Friday evening through Sunday evening, the e-mini trades virtually around the clock. Mohan's Market Force - Daily Directional Forecast' day-trading methodology is based on volume and price action of the pit trading session, also known as Regular Trading Hours (RTH), beginning at 9:30am Eastern Time until 4:15pm Eastern Time, for 405 minutes of nonstop fast action.

The Daily Directional Forecast concerns itself only with the RTH trading session. Being hardworking "blue collar" types, we punch the clock at 4:15pm, pocket our paycheck and head home to relax with family and friends. There is more to life than the markets.
What is a point?

Equity traders are sometimes confused by varied interpretation of "points," for understandable reasons. According to CME contract specifications, one point is 1/100 or 0.01 of an index point. Using this definition, the e-mini moves in 25-point ticks. To avoid the confusion of index points versus contract points, the term handle is used to describe one index point and the index price levels.

Therefore if the S&P 500 Index futures move from 950 to 955, it is said to have moved from 950 handle to 955 handle for a move of 5 handles (index points) or 500 contract points.
The numbers

Daily Directional Forecast provides some key numbers for plotting the session's road map. For computing our various proprietary indicators, only the numbers of the big contract are used. All the previous day's session numbers, moving averages, and Market Profile Value Area numbers are based on the price action of the big S&P 500 Index Futures contract.

The Buy and Sell pivots are rounded to the e-mini tick size, since most traders use the e-mini as the trading vehicle.

Index numbers discussed as part of the High Five are the Dow Industrial Average and the Nasdaq Composite Index. These are the cash indices universally available and quoted as broad market averages.
What's a pit bull doing in there?

The Pit Bull Moving Average is what we named this important number in honor of Marty Schwartz, the legendary S&P trader. In his book, Pit Bull, Schwartz describes how he computes and uses this average. His calculation is based on a10-Day Exponential Moving Average.

During his trading career, I have found that the Simple Moving Average does an admirable job as well, and this level is watched closely by floor traders and insiders. The name "Pit Bull" is given to honor Mr. Schwartz; the method of computation is 10-Day Simple Moving Average. To get this figure, add the last 10 days' settlement prices of the big S&P futures, and divide by 10.
LSS is not an abbreviation for that "L word" with "O" taken out

LSS is a day-trading method, originally developed by a 1950s grain trader named George Douglas Taylor, who identified a three-day cycle known during his time as the "Book Method."

This was further refined by George Angell and published as the "LSS" method, which stands for "Long, Sell, Short sell. My long-term observation and study of this method has resulted in my breaking the code on this cycle, and it's one of the most important parts of my analysis of the market.
Abbreviations you may wonder about

B/O means "breakout," and refers to the price breaking out above the high point of the first hour of trading during regular market hours on the e-mini S&P500.

B/D means "breakdown" and refers to the price breaking down below the low point of the first hour of trading during regular market hours on the e-mini S&P500.
Value Area

Value Area is a price range where the highest volume trading occurred. It is part of a system called "Market Profile," which was originally developed by a trader named Steidelmeyer, and later licensed by the CBOT. We offer this important trading zone each day in our Daily Directional Forecast, plus daily commentary about how to interpret the action in this zone during the trading day.