How to Trade Emini S&P 500 Futures & Options
What is a commodity futures contract?
A commodity futures contract is an agreement to buy or sell a particular commodity at a future date. The price and the amount of the commodity are fixed at the time of the agreement (purchase / sale). Similar to trading stocks, commodity futures contracts trade on regulated futures exchanges such as the CME (Chicago Mercantile Exchange) or the ICE (Intercontinental Exchange). These contracts typically can be bought and sold throughout the duration of the contract. The majority of commodity futures contracts are liquidated prior to the delivery / expiration date.
A commodity futures option gives the purchaser the right to buy or sell a particular futures contract at a future date for a particular price. These contracts can also be bought and sold throughout the duration of the contract’s term.
Commodity futures & options are bought and sold for both speculative and hedging purposes.
With limited exceptions, commodity futures and options must be traded through futures brokers who are registered with the CFTC (Commodity Futures Trading Commission) and NFA (National Futures Association).
The Futures Contract:
Emini S&P 500 futures – ticker symbol: ES.
If you are looking to add or manage exposure to large-cap companies in the U.S. stock market, consider Emini S&P 500 futures.
Emini S&P 500 futures provide one of the most efficient, liquid and cost-effective ways to gain market exposure to the S&P 500 Index. A broad-based, capitalization-weighted index, the S&P 500 tracks 500 of the largest companies of the U.S. economy, and is a key indicator of the stock market’s health. With Emini S&P 500 futures, you can take positions on the performance of the S&P 500 stock index electronically.
Trading futures & options.
To start trading Emini S&P 500 futures & options, you will first need to open a futures trading account…
Once you’ve opened an account, you will have access to our trading platform (you may also phone your orders in to our 24 hours trade desk).
All futures & options contracts have symbols which are used to identify the contracts you wish to trade. For Emini S&P 500, the root symbols are…
As these are ‘futures’ contracts, there will be contracts available to trade with different months & years. Many traders will choose to trade the most active month, also known as the “front” month, as this will typically be the contract with the most trading volume.
When placing an order, you will identify the exact contract you wish to trade by appending the month and year codes to the root symbol. For example, if you wish to trade a September 2020 Emini S&P 500 futures contract, the full symbol will be: ES.U20
In this example, ES is the root symbol (a period is then inserted), U is the month code for September and 20 is the last two digits of the contract year. A period is always used between the root symbol and the month/year code.
When trading futures and options, you can either go long (buy) if you think prices will rise or go short (sell) if you think prices will drop.
To enter a futures contract trade, we will enter the following information into the trading platform.
• Number of contracts to be traded
• Trade direction – Buy 0r Sell
• Exact contract symbol – i.e. ES.U20
• Order Type: Market, Limit or Stop
• Order Price (if Limit or Stop order)
• Order Duration: Day (current trading session) or GTC (Good Till Canceled)
Once your order has been entered, our trading platform will give you a ticket number for the order as well as a notification when the order gets filled. If/when the order is executed, you will then have either a long or short position depending on the Trade Direction you chose. You can modify or cancel any working order prior to it being filled or expiring.
Determining Profit or Loss:
The Emini S&P 500 futures contract trades in 0.25 (1/4) point increments. As each contract is equal to $50 x the S&P 500 Index, a 0.25 price move equates to $12.50 (0.25 x 50). If Emini S&P 500 prices were to move up or down 5.00 points, that would equate to $250.00 +/-.
For this example, let’s assume you went long (bought) one (1) September 2020 Emini S&P 500 futures contract at a price of 3120.75. If Sep’20 Emini S&P 500 futures prices were to rise to 3130.25, that would be a 9.50 point gain or $475 (9.50 x 50). Conversely, if the Sep’20 Emini S&P 500 price dropped to 3110.75, that would be a 10.00 point loss or $500 (10.00 x 50).
Please note, when calculating profits or losses, you must also take into account commissions and associated trade fees to determine your net profit or loss.
How much money do I need to trade?
When trading commodity futures contracts, the futures exchanges will set what are called Margin Requirements for each commodity. Margins in futures trading is NOT similar to margins in stock/equity trading. Think of margin requirements as a performance bond. The dollar amount you must have available in your account in order to trade one particular commodity futures contract. To view the current, initial margin requirements for the Emini S&P 500 (or any other major futures contract), please visit our Margin Requirements web page. You’ll find the margin requirement for this contract under the ‘Stock Indices’ section of the table.
Our Futures Margins Requirements web page will show all of the current margin requirements needed for trading one contract – either for position trading or Day-Trading. The Initial & Maintenance margin requirements are for position trading. Position trading refers to holding a futures contract for longer than one day (trading session).
We also offer Day-Trade margins. Day-Trade margins are typically set at 25% or less of the initial margin requirement and allow futures traders to participate in a given futures contract just for the currents day’s trading session with less funds. When Day-Trading, you must liquidate all open positions by the close of the current trading session or have the available funds in your account for the full, initial margin requirement to avoid a margin call.
*Please Note: Margin requirements are subject to change without notice from the futures exchanges.
Take the Next Step…
If you’re ready to get started trading commodity futures, the next step is to open your trading account. Click the following button to access our New Accounts web page…