DEFINITION

By definition, an Emini is a futures contract that can be traded electronically on the Chicago Mercantile Exchange and is based on the S&P 500 index.

Eminis provide an exciting, highly versatile, efficient, and economical means of capitalizing on the daily swings in stocks.

EMini traders focus on an entire basket of stocks at a fraction of the cost of commissions and avoid the expense of trading many individual stocks. At the same time, Emini traders can capitalise on both rising and falling markets.

OTHER BENFFITS

• There is no need to tie up large sums of money purchasing stocks.
• You can trade through the Internet and receive your fill prices back in seconds.
• Day traders know exactly where they stand at the end of each day without the risk inherent in holding positions overnight.
• With day trading, each day represents a whole new world of opportunity.

BACKGROUND

Eminis, sometimes referred to as emini futures are smaller units of older, "grown-up" futures contracts that have been around for quite a while. Emini contracts are still relatively new to the trading scene having arrived at it only a decade ago, while the "full" contracts have been around for longer than two decades.

There are several futures markets that have developed both full and emini contracts. The most popular of them is the S&P 500. Another is the S&P 500 eminis and another is the Russell 2000.

All eminis have in common that they are futures contracts for stock indices. There are now eminis for other futures in the markets that can be commodities (such as gold, silver or crude oil) or currencies (e.g. yen, euro). As these newcomers are much less liquid, trading them can be much tougher and much riskier. If you are just starting in this field, I suggest that you stick to the more established emini markets that provide better volumes and thus better trades due to liquidity.

TRADING

Stock index eminis are often used for day trading which boils down to speculating in which direction the value (price) of their underlying index will move.

• If you expect it to move up, you buy one or more emini contracts and if the price indeed moves in your favour you can then unload these contracts for a profit.
• If you expect it to move down, you take a short position, selling emini contracts.
• Clearly, when your predictions do not pan out, you will end up with a loss.

The size of the profits you can make while day trading eminis is a function of the intraday range of your emini market. Most day traders employ more than one contract in their trading.

How many contracts you can trade depends primarily on the emini margin which in turn varies from one broker to another.

Not all of your trades will be winners, therefore you need to account for losers as well. Since the losers will generate draw downs in your equity, you need to have some cushion to withstand them. Twice the margin is the absolute starting minimum, three times if you are a total beginner.

In order to be allowed to trade, your equity must never fall below the margin level per contract. If it does, you need to reduce the number of contracts you trade and if this is not possible, stop trading until you raise enough capital again.

To open an account to trade EMINIS, follow this link and register your interest to open a Trading Account with our Preferred and Recommended Alliance Partner.