S&P 500 E-Minis: The Biggest Show in Town


You’ve probably heard of about “stock market futures,” but do you really know what they are? Today let’s start by looking at the most popular item in the market: CME’s S&P 500 E-minis.

These contracts track the most widely followed stock benchmark in the world. Every point up or down by the S&P 500 index translates into $50 of value change for each contract in a client’s account. They’re available 23 hours a day, from Sunday night through Friday afternoon.

While E-minis track the stock market, they behave very distinctly from shares because they’re futures. The most important difference is that you don’t see a value for each contract in your account. If, for example, you owned 100 shares of $20 stock, your account would be worth $2,000.

Stocks vs. Futures

With futures, however, you start with a certain amount of principal and then make or lose money according to the market. If you buy one E-minis contract for 2700 and sell it for 2710, your contract will simply grow by $500. (Remember, each point represents $50.)

The next big difference is the fact that contracts change, or “roll,” periodically. E-Minis always start with the root “ES”, followed by an expiration month and year. Right now everyone’s focused on the March contract: “ESH19”. Next month we’ll flip to June, “ESM19.” (Each month has a letter code. It’s not an abbreviation.) September follows because E-minis have a quarterly roll.

Because the symbols change (unlike stocks), TradeStation provides “continuous contracts” so you can chart and analyze prices over a long period of time. So going forward you’ll see the S&P 500 E-minis referenced simply as @ES. Remember these are for historical purposes only and cannot be traded. If you want to take a real position you must use a specific contract.

S&P 500 E-minis, current contract, with Matrix and hourly chart.

The third big concept is margin, especially because this is different from margin in a stock account. With futures, margin is the capital required to take or hold a position. There are a few nuances:

  • Initial margin is the amount of cash you need enter a long or short position on @ES. It’s currently $6,600 per contract.
  • Maintenance margin, currently $6,000 per contact, is the amount of capital you need to hold a position. This is different from the initial margin because it shows how much of a loss you can take if a trade goes against you.
  • Here comes the good news: These requirements are slashed by 75 percent for day traders  between the normal market hours of 9:30 a.m. ET and 4 p.m. ET. That means you only need initial margin of $1,650  to go long or short a single contract and $1,500 of maintenance — as long as you exit your trade by the closing bell. (That’s 25 percent of the $6,600 initial margin and 25 percent of the maintenance margin, respectively.)

So with all these complications you might wonder, why even bother to trade @ES? There are several reasons.

Why Consider E-Minis?

First, they’re quite simple once you understand the differences from stocks. Secondly, @ES is extremely versatile for hedging. Say you have a large portfolio or market-tracking mutual fund, and are worried about a crash. Simply shorting a certain number of @ES contracts can offset losses as the S&P 500 moves lower.

Next, futures lend themselves to advanced charting and automated trading strategies — TradeStation’s bread and butter. Finally, there are often tax benefits to futures over stocks and exchange-traded funds.

In conclusion, CME’s S&P 500 E-mini contracts are the biggest show in town. Here’s a review of the basics:

  • What it tracks: S&P 500 stock index
  • How it tracks it: $50 per point, per contract, up or down.
  • When it trades: Sunday at 6 p.m. ET through Friday at 5 p.m. ET. Each day during the week it halts 4:15-4:30 p.m. ET and 5-6 p.m. ET.
  • Capital required during the normal session: $1,650 to enter, $1,500 to hold. (Subject to change.) This is based on the $6,600 initial margin requirement and the $6,000 maintenance margin.
  • Expirations: Third Friday of March, June, September, December.

Next week we’ll look at another heavily traded product: Nymex Crude Oil (@CL).

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