E-Mini Futures Contract Pros & Cons

    What is a E-Mini Futures Contract

    An e-mini futures contract provides a trader the ability to buy the major indices on the Chicago Mercantile Exchange for a fraction of the cost of a full contract.  E-mini contracts are available for the S&P 500, S&P 400, Russell 2000 and the Nasdaq 100. 

    What is a E-Mini Futures Contract

    An e-mini futures contract provides a trader the ability to buy the major indices on the Chicago Mercantile Exchange for a fraction of the cost of a full contract.  E-mini contracts are available for the S&P 500, S&P 400, Russell 2000 and the Nasdaq 100.  Each e-mini futures contract is valued at $50 US Dollars and the total cost of a contract is calculated by multiplying the per contract value of $50 x value of the index.  For example if the Index is trading at $1280 the value of one contract is $1280 x $50 = $64,000.  Each one point move in the S&P would represent $50.  You do not need $64,000 to buy the contract, your brokerage firm will have a margin requirement to hold this position.  The requirement can range from $3,000 to $6,000 per contract to hold positions overnight.

    Pros of trading An E-mini Futures Contract

    Exposure

    One of the biggest complaints of day traders is the fact that stocks are too volatile and each one has their own personality.  Trading the e-mini allows a speculator the ability to purchase an entire index, which reduces a traders exposure to the market, since you are buying a basket of stocks. 

    Day Trading

    Day trading stocks requires a trader maintain $25,000 in the account.  This can prove costly for small retail investors.  The e-mini has a small cash requirement to day trade an index, some as low as $2,500 dollars.  This is 10 times less the requirement to trade stocks.

    Focus

    Each stock trades differently and reacts to market conditions on an independent basis.  However, when day trading the e-mini, you are constantly looking at the same play.  This level of focus on one investment vehicle builds a level of "touch" that only comes from monitoring one thing extensively.

    Cons of Trading E-mini Futures Contracts

    Leverage

    The one downside to trading e-mini futures contracts is the leverage.  With just $5,000 dollars a trader can carry 15 to 20 times the amount of cash they have on hand.  So, without sound stop strategies or a successful trading system, a trader can wipe out an account in hours. 

     

    Tim Ord
    Ord Oracle

    Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

    Tradingsim.com
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