E-Mini Futures

E-mini futures trading is a popular way to speculate on major assets from a range of markets, including forex, commodities and indices. It is an attractive option for investors due to the high liquidity, low volatility and ease of access. This guide to E-mini futures trading will explain how they work and their pros and cons. Our team have also compiled a list of the top E-mini futures brokers for UK traders:

What Are E-Mini Futures?

E-mini futures are derivatives that track the price of an underlying asset. Common assets for E-minis include forex, indices such as the Dow Jones, and commodities like crude oil and natural gas. As the name suggests, they are smaller in volume than traditional future contracts. Additionally, the E refers to the fact that they are traded electronically on exchanges and platforms around the world.

The first E-mini futures contract was created by the Chicago Mercantile Exchange (CME) in 1997. The product was based on the S&P 500 and valued at 20% of vanilla future contracts on the index. The product was launched with the aim of lowering the entry barrier, so it would be easier for people to gain access to this form of investing.

How Do E-Mini Futures Work?

Futures

Before detailing how E-minis work, it is important to first cover how a normal futures contract works.

A future is a contract whereby you agree to exchange funds for an asset at a later date and at a set price. Suppose you believe that the price of a stock is soon to increase, you could buy a future contract with an expiration of a few hours. By the time of the expiry, if the asset’s value has increased, you will have generated a profit as you can now sell it for the current price. However, if the value had instead decreased, you would make a loss.

Note that with future contracts such as E-minis, you are obligated to complete the transaction. This is different from other derivatives such as options trading, where you are given the choice of whether you trigger the transaction or not upon expiry.

Contract Lengths

When trading E-mini futures, there is a range of contract lengths you can choose from, depending on the exchange. For example, through CME, clients can trade E-minis on the NASDAQ-100 index that expire in March, June, September and December of each year. At any time, there are nine open contracts you can trade on. This includes the next five contracts to expire and four contracts expiring in December over the next four years. For instance, in January of 2023, you can trade on quarterly contracts up until and including March 2023 and December expirations until 2027.

These are the only expiration times, so depending on the time of the calendar year that you open, contract lengths can be anywhere from a day upwards.

Example

The underlying asset for an E-mini future typically closely follows the true value of the asset. For example, at the time of writing, the latest quote of E-mini crude oil from the CME is 76.325, while the light sweet crude oil future contract quote is 76.31. The difference between E-minis and normal contracts comes from the trade volume and, therefore, overall contract value.

All E-minis have a multiplier that separates them from normal contracts. For instance, E-mini Brent Crude Oil future contracts on the CME are one-tenth of the contract size of normal Brent Crude Oil contracts (100 barrels vs 1,000 barrels).

To demonstrate how E-mini futures work, here is an example using the S&P 500:

The E-mini S&P 500 with the CME is $50 multiplied by the value of the index. So, if the index is currently valued at $3,970, then the E-mini contract is valued at $198,500. With a 0.25 tick value, the minimum price change per contract is $12.50 (0.25 x $50). As the contract is valued at $50 greater than the S&P 500, an increase of just $5 in the index means the overall contract increases by $250 ($50 x $5).

It is not a requirement that you have the total contract value deposited in your brokerage account to trade on these future contracts. Instead, you can trade on margin to boost your purchasing power.

Assuming the same example as above and that analysis using technical indicators on the live charts and historical data points to an upcoming bullish trend. From this, you buy one future contract without leverage. By the time of expiration, the index grows in value by $20 up to $3,990, meaning the contract price is now $199,500. This results in a profit of $1,000 ((3,990 – 3,970) X $50).

Pros Of Trading E-Mini Futures

• Accessible for retail investors
• Long and short positions
• Margin trading
• High liquidity
• Low volatility

Cons Of Trading E-Mini Futures

• Limited assets available to trade
• Obligated to trigger the transaction at expiry
• Limited GBP-denominated products for UK investors

How To Start Trading E-Mini Futures

1. Choose an underlying asset(s) to speculate upon
2. Find an exchange and broker that is offering E-mini futures trading for your chosen asset(s)
3. Deposit funds into your account
4. Conduct technical and/or fundamental analysis to find suitable opportunities to invest
5. Open the trade at the optimal time
6. Wait for the contract to expire

How To Compare E-Mini Futures Brokers

Assets To Trade

Generally, there are not as many markets and assets you can invest in via E-mini futures, compared with other derivatives such as options or traditional future contracts. However, it is still a good idea to find a broker with different products to choose from.

Interactive Brokers, for example, offers E-mini futures contracts on the S&P 500, NASDAQ 100, Russell 2000 and Dow Jones index. Additionally, you can find quotes on gold as well as eight forex pairs, including GBP/USD and EUR/USD.

Trading Platform

The platform is the tool with which you will be executing any investments and completing analysis to plan out your positions. As they impact your overall experience significantly, spend time investigating the different platforms available.

One of the most important aspects is how the platform supports technical and fundamental analysis. So, look for those with large numbers of indicators and tools that can be overlaid on top of price graphs. This also includes detailed real-time customisable charts with rich historical data. Finally, it should be intuitive to navigate the symbols list to find the tickers for chosen assets.

Fees

Find a cost-effective E-mini futures broker. Brokerages charge clients through trading commissions, bid-ask spreads, fees on deposits and withdrawals, inactivity and access to certain services and features.

When comparing E-mini futures brokers, consider how their fee structure aligns with your investing style and strategy. For instance, a large commission charged on a per-trade basis may not be suited to a short-term day trading strategy.

Customer Support

The best brokers offering E-mini futures trading will have a range of customer support channels. This should include a live chat option on their website or a hotline you can call to speak to someone from the team.

Reviews

A good way to gauge if a broker is reliable or not is by reading customer reviews. There are large communities of traders willing to offer their opinions and share their experiences with online brokers. See our ranking of the best E-mini futures brokers to find a suitable provider.

Trading Strategies

Breakout

A breakout strategy for investing in E-mini futures involves identifying support and resistance levels, which create an expected oscillatory price range for a given asset. This strategy is based on the idea of identifying when the value of an asset “breaks out” from this range, which would suggest an extended trend.

It is a relatively simple strategy to execute as there are many tools and indicators that can be used to identify these support and resistance levels, such as the pivot points indicator.

The resistance level is the upper boundary and the support level is the lower boundary. Therefore, if an asset’s price rises above the resistance level derived from recent performance, you would buy an E-mini futures contract, expecting the bullish trend to continue. If your broker permits, you would then set a stop loss at or around the resistance level. On the other hand, if an asset’s value decreases below a support level, you would sell a contract and place a stop loss at the support price.

Trend Following

This E-mini futures trading strategy is based on the idea of finding a trend at its beginning and capitalising on its strong momentum. To help identify suitable opportunities, you could use indicators like the stochastic oscillator or the MACD (moving average convergence divergence). These tools can indicate when indices, commodities and currencies are overbought or oversold and the strength of their trend momentum.

If the market is oversold, which points to the asset being undervalued, and there is strong positive momentum, you would buy an E-mini futures contract, expecting the price to rise. If the market is instead overbought, which indicates the asset is overvalued, and there is strong negative momentum indicated, you would sell an E-mini future.

UK Tax Considerations

Taxation for derivatives such as E-minis often comes under capital gains rules for retail traders. This is treated separately from normal income tax and it is only your profits that are taxed, not the overall returns. For instance, if you open an E-mini futures position using £10,000 and generate returns of £25,000, only the £15,000 profit counts as capital gains.

In the UK, the tax-free allowance is £12,300. Using the above example, only £2,700 would be liable for taxation; the first £12,300 is untaxed.

Tips & Tricks

Economic Calendar

Be aware of upcoming events and announcements that could impact the price of the assets you speculate on, such as an S&P 500 weighting review. To help you stay organised, track these dates and associated trading hours in an economic calendar so you can execute trades while staying informed of external factors that could potentially impact your position.

For example, if you are trading forex, make a note of announcements for YoY interest rates and policies relating to the countries that use the currencies in the pair. Also log the expiration date and time for any contracts as soon as they are opened.

Furthermore, E-mini futures investors can include holiday dates as the trading hours on those days may be different from regular days. The best way to keep up to date regarding trading hours for assets like the S&P 500, whether during any holidays or not, is by checking the website of the broker that offers E-mini futures.

Risk Management

All trades and investments carry a degree of risk. With E-mini futures trading, there is a chance you can lose a large proportion of your funds on a single trade. For instance, if you were to sell a contract and then the price of the underlying asset grew rapidly, you would lose money, especially in the case of margin trading.

For this reason, implement risk management techniques. One such approach is the 1% rule, which states you should only ever invest around 1% or 2% of your total funds on a single trade. This means that, even if the trade goes wrong, the damage to your portfolio is recoverable.

Should You Trade E-Mini Futures?

The low barrier to entry with E-mini futures means it is easier for clients to start investing in Euro FX and indices like the S&P 500, as well as commodities and metals, particularly gold. If you are interested in trading E-mini futures, it could be worthwhile registering for a demo practice account with a broker to simulate trading conditions and test out different strategies.

Head to our list of the best E-mini futures brokers to get started.

FAQ