E-mini Futures

The fractional values of the total value of a standard futures contract

What are E-mini Futures?

E-mini futures, or more commonly known as e-minis, is a futures contract. The difference is that it is traded electronically, hence the name e-mini.

 

E-mini Futures
Fig.1: E-mini S&P 500 Futures Quotes (Source)

 

It is also referred to as e-mini because it is a part or a fraction of the total value of an underlying standard futures contract, hence the name e-“mini.” Hence, when a standard futures contract is broken down into various smaller parts, the fractional values of the total value of a standard futures contract is an e-mini.

 

Summary

  • When a standard futures contract is broken down into various smaller parts, the fractional values of the total value of a standard futures contract is an e-mini.
  • E-mini futures are traded electronically, hence the name e-mini.
  • E-minis are heavily traded on the Chicago Mercantile Exchange (CME) because it was the CME that first introduced them (on September 9, 1997).

 

What is a Futures (Futures Contract)?

A futures contract, referred to as a futures, is a binding legal financial contract, or an agreement, to buy or sell an underlying at a predetermined price, at a specified, pre-agreed date, in the future, between two parties who don’t necessarily know, or are involved in business with, each other.

The predetermined price agreed upon in the futures contract is known as the “forward price.”

The underlying asset that is being bought or sold under a futures contract is usually a commodity or a financial instrument.

 

Where are E-minis Dominantly Traded?

E-minis are heavily traded on the Chicago Mercantile Exchange (CME). They are available widely on the following indexes:

  • S&P 500
  • S&P MidCap 400
  • Russell 2000
  • NASDAQ 100
  • Commodities Index
  • Currencies (FX)

 

E-minis are predominantly traded on the CME because they were first introduced here by the CME. On September 9, 1997, they were launched due to the value of the then-existing S&P 500 contract becoming too vast for the number of small traders involved. To cater to the needs of such small traders, the S&P 500 contract was broken down into small fractions, so that the small traders could easily trade it.

Because of the ease of trading in these mini contracts, as a part of a large underlying futures contract, it became a highly popular equity index contract. It is how e-minis came into being traded heavily.

Following the success of the S&P e-mini futures contract, CME introduced an e-mini for the NASDAQ 100 Index contract, followed by several other e-minis catering to the small traders’ trading needs.

 

Importance of E-minis

 

1. Caters to the smaller traders

E-minis were specifically designed to cater to the smaller traders, as opposed to the large hedgers. It increased participation in the futures trading market by additionally involving many small traders and avoided the problem of the concentration of large futures contracts in the trading hands of a select few large hedgers.

 

2. Increased market participation and involvement

Since it eliminates the problem of futures trading concentrated to a select few large hedgers, it increases overall market participation and involvement. It helps open up trading opportunities to many small traders.

 

3. Increased flexibility

E-minis broke down large, rigid futures contracts into smaller fractions, thereby increasing the flexibility in the future contract trading, making the market much more liquid.

 

4. Electronic trading platform

E-minis are electronically traded, and it brings about a kind of instantaneousness in its trading that is unparalleled. It is much more convenient, so much faster, and saves an incredible amount of time and money in the market.

 

5. Tight bid/ask margins

E-minis are traded in increasingly higher volumes. Because of the high amount of volume traded in, the bid/ask spread, i.e., the difference between the bid and the ask price leaves a bare minimum margin of 1 or a 0.25 index points.

It also serves the central purpose of e-minis, which is to make the futures market more accessible to the small traders and to ensure the elimination of the unfair advantage enjoyed by large traders.

 

Additional Resources

CFI offers the Capital Markets & Securities Analyst (CMSA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Forward Contract
  • How to Invest in the S&P 500 Index
  • New York Mercantile Exchange (NYMEX)
  • Stock Market Index

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