ES (E-mini SP 500)

By: Dr. John Trapp | Tue, Apr 13, 2010
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I trade the E-mini S&P 500 exclusively. I find advantages in specializing in one market. For those who are not yet trading futures because they don't understand them, I hope this introduction will provide you with enough information and confidence to look seriously at trading the E-mini. Below I will give you basic information on the E-mini for the S&P 500 and the advantages I see trading this market.

BACKGROUND: The Chicago Mercantile Exchange (CME) introduced the S&P 500 futures contract in the Spring of 1982. The commodity ticker symbol for the "big" contract is SP. The drawback to SP was that it was expensive and out of the financial reach of most individual traders. It became the domain of institutions and large market players with deep pockets. In order to open up index futures trading to the individual traders, the CME created smaller sized future contracts called the E-mini in 1997. The current value of the E-mini contract is 1/5 the size of the big contract. The E-mini quickly became the fastest growing product in CME history, and the most popular equity index futures contract in the world. There are good reasons for this.

Whereas the big contract (SP) is traded by the old-fashioned open-outcry method on the trading floor, the new E-mini (ES) is traded electronically through CME's Globex system. When the E-mini S&P 500 was introduced, the big contract (SP) was valued at $500 times the index. Subsequently, the big contract was split 2:1 and a contract is now valued at $250 times the S&P index. The E-mini is valued at $50 times the S&P index.

What is a Future's Contract?: It is an agreement between a seller and a buyer to deliver and take delivery of a commodity at a specified future date. But in the case of the E-mini S&P 500 futures contract, the commodity is a portfolio of stocks (500) represented by a stock price index (the S&P 500). In practice, the delivery is a cash settlement of the difference between the original transaction price and the final price of the index at the termination of the contract. Rather than waiting for the end of the contract, however, the cash settlement occurs incrementally daily until the termination of the contract. The futures contract price corresponds to the underlying index, although it is not exactly the same. It can be higher or lower, but tracks closely enough to serve as a reasonable proxy.

The Value of the E-mini S&P Futures Contract: This can be calculated by multiplying ES' closing value by $50. As I write this, ES closed at 1091.50. Therefore, one ES contract is worth 1091.50 X $50 or $54,575. The important numbers for trading are: 1. How many ticks (minimum price fluctuation) are there in 1 point on the index? and 2. What is the value of a full point or a tick? For the big contract (SP), there are 10 ticks in a point, and each tick is worth $25, making a full point worth $250. For ES, there are 4 ticks in a point, and each tick is worth $12.50, making a full point worth $50. With my broker, a round trip trade with 1 contract costs about $3. So if I make one tick profit on a trade ($12.50), I cover the cost of the trade and make profit. If I make 5 points on a trade with 1 contract, my profit is 5 X $50 = $250 minus commission. Five contracts would have yielded a nice $1,250 profit! What are the margin requirements to trade ES?

Margin Requirements: This is what makes trading the E-mini's so appealing. The margin requirements vary from broker to broker, so I will give you my broker's margin requirements.

  1. Initial intraday margin: amount in your futures trading account needed to open a trade during the regular session ~ Margin Requirement per contract = $1,406
  2. Intraday maintenance margin: amount needed in trading account to maintain each contract ~ Margin Requirement per contract = $1,125
  3. Initial Overnight Margin: amount needed to carry each contract through the 16:15 closing of the day session ~ Margin Requirement per contract = $5,625
  4. Overnight Maintenance Margin: amount needed to maintain each contract that was held through the 16:15 close of the day session ~ Margin Requirement per contract = $4,500

As an example, if you have a $7,500 futures trading account, you can:

A couple observations can be made from the facts just stated. First, you have tremendous leverage trading ES. Secondly, you are severely penalized if you carry a trade through the 16:15 regular session closing. This is basic information for those who trade ES already, but for those who are still considering it, I hope this is useful. I wish someone had made all this clear to me when I began trading the E-mini. A fear of the unknown kept me away from it.

Advantages: Why do I trade an E-mini?

Exclusively Trading ES: Aside from my IRA, all my trading is done with ES. Why do I specialize?


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Dr. John Trapp

Author: Dr. John Trapp

Dr. John Trapp a.k.a Mortie

Dr. John Trapp a.k.a. Mortie

Dr. John Trapp a.k.a. Mortie for Value of Perfect Information who offer stock market commentary, fundamental & technical analyses on the financial markets. Try MortiES' 30 day free trial. Visit:

A little about myself. My name is John Trapp and I write for the "Value of Perfect Information" exclusively. Trading didn't look too difficult to me 22 years ago, so I began trading October 1987. After that experience and a break from trading, I tried again. This time I was going to be a Bear. Perfect for the 90's. So I didn't have a great start as a trader. I paid a lot for my trading education. I was thrilled when I could finally break even on a regular basis. Trading is an avocation for me - one that I take seriously, and one that I consider the most difficult endeavor I have ever undertaken. I have a lot going against me as a trader. I was a Marine officer in Vietnam and fought in the Ashau with a Battalion called "The Walking Dead" ~ and so, like most combat Marines, I'm too aggressive. I'm a Doctor (one of the Dental specialties) ~ and everyone knows they are the worse investors/businessmen. I am a perfectionist and hate to be wrong ~ so I have a tendency to want to fight the market. Overcoming these liabilities makes the prize more rewarding. I'm still a work in progress, but am making headway. I think I have a lot of good advice for new traders. If I would follow my own advice more consistently, I would be a far better trader also. This is the article and charts my premium subscribers received this weekend.

Value of Perfect Information: Combined, the authors are providing you the investor with various and differing stock market commentary, fundamental and technical analyses on the financial markets that you can utilize to get as close to the "Value of Perfect Information" as if you had tomorrow's financial paper in front of you today. Perfect information would practically mean that all investors know all things, about all stocks, at all times, and therefore always make the best decision regarding investments; in a small way, the authors are attempting to provide you with this "Value of Perfect Information". Enjoy!

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