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What is E-Mini Trading?

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  • Written By: Toni Henthorn
  • Edited By: W. Everett
  • Last Modified Date: 12 November 2016
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An E-mini is a small-sized futures contract on the Standard & Poor 500® (S&P 500®) stock index that investors trade electronically on the Chicago Mercantile Exchange (CME) Globex platform. The CME first introduced E-mini trading in 1997 in response to complaints by investors that the standard S&P futures contract was too expensive for an average investor. E-mini trading has grown in popularity since its inception, with an average daily traded dollar amount of about $140 billion US Dollars (USD). An E-mini contract is worth about $50 US Dollars (USD) multiplied by the value of the S&P 500® index. E-mini contracts are also obtainable for other indexes, such as the Russell 2000 and the Nasdaq 100.

E-mini trading also offers the distinct advantage to the average investor of low margin requirements. While the standard futures contract often demands a performance bond of several thousand dollars, E-mini trading requires margins of as little as $100 USD. In inflationary and high-volatility markets, margins for full-sized contracts may rise sharply, making it difficult, if not impossible, for the average trader to enter the market. The E-mini provides a low-cost avenue for a small investor to get involved in the market without making an exorbitant capital investment.

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In addition to its greater affordability relative to conventional futures contracts, E-mini trading offers other advantages to investors. Both the lower prices for E-mini contracts and the global electronic marketplace produce greater liquidity in the market by opening up E-mini trading to investors worldwide. The electronic trading platform trades over 23 hours per day, five days per week. Unlike the traditional S&P 500® futures contract trading, which is still conducted in the open pit, the electronically-handled E-mini trading prevents slippage, enhancing the reliability of the buy and sell prices.

Although E-mini trading extends an investor a cost-effective entrance into the stock index market, he must also consider the disadvantages. The mini markets allow a limited number of trading orders. For example, many investors want to place a good-'til-canceled order (GTC) to limit losses. GTC orders are not available in the mini-options markets, so traders have to put in stop limit or stop orders on a daily basis before trading begins. For this reason, E-mini trading requires either active management or closing out all positions overnight.

On 6 May 2010, a flash crash of the markets occurred. After intense investigation into the reasons for the crash, the United States Securities and Exchange Commission (SEC) concluded that E-mini trading produced the crash. Apparently a large mutual fund sold 75,000 E-mini contracts in one day, triggering high-frequency traders to sell off their contracts. The combined sales of the high-frequency traders and the mutual fund resulted in a three- percent drop in the E-mini price in just four minutes. In response to the flash crash, new government regulations have imposed new trading restrictions that halt trading for five minutes when any S&P 500® stock drops or rises more than 10 percent within a five-minute period.

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