E-Mini Futures Trading -- A Lot To Love
In honor of St.Valentines Day, I'd like to offer an unabashed view of the electronic e-mini index futures markets. Like many people's relationships, there are certain things about e-minis that I love – and other things that I just have to put up with. So let's look at both sides of the coin, and see what conclusions we can draw about these ultra-popular trading tools.
Things to Love About Index E-Minis:
Liquidity. This is what allows us to enter and exit trades with a minimum of slippage. S&P 500 are among the most liquid exchange traded instruments in the world. Other index e-minis are also very liquidity and enjoy significant day trader participation. These include the Dow, the Nasdaq and the Russell 2000. More on each of these below.
Level Playing Field. With e-minis, all trades are computer matched. This means that a the trader at a terminal in Topeka, Kansas is not at a disadvantage to anyone trading e-minis around the world. The high level of liquidity also helps make a level playing field, because its almost impossible for the spreads to get bigger than one tick in the four e-minis mentioned above. (The spread is the difference between the bid and offer prices).
Leverage. Overnight leverage on e-minis is high, at roughly 20:1 for the S&P 500 e-mini. Day-trading leverage is screaming at most brokerages, with some brokerages allowing greater that 100:1 leverage. It's tougher to get a bigger bang for your trading buck than in e-minis.
Predictable Movement. One of the reasons that so many professional traders trade the index e-minis is because they have predictable price movement intraday. This means that when prices approach certain points, there is a pattern of reaction that can be exploited. This tradeable edge is a critical – and much loved – aspect of e-mini trading.
An Index Personality for Everyone. The four major indexes that are traded (S&P, Dow, Nasdaq and Russell) each have different personalities, while sharing the overall characteristics and trading styles of indexes. The S&P is a bit slow and ponderous, with great fills and minimum slippage. The Russell is the other end of the spectrum – moving quickly at the drop of a hat. Both the Dow and Nasdaq fall somewhere in between.
Things About E-Minis that We Just Have to Put-Up With
The quirks and idiosyncrasies of the e-minis are there also. Yes they do have their downsides. And just like our significant others, these are things about e-minis that we'd love to change but can't – so we just learn to live with them.
Leverage – the Other Side of the Sword. Great leverage can bring great reward. But it also brings great risk. If you have a $10,000 account that allow you to trade on $1000 margin, you can trade 10 Russell contracts. A 10 point move in your favor will double your account; a 10 point move against you will wipe you out. With leverage this high, proper risk management is absolutely critical.
The Cumbersome S&P. There are periods of time when the S&P seems to act like a huge oil tanker. Never moving outside of a narrowly defined range.
Trend Days vs. Range Days. Traders in all instruments have the problem of deciding if you're in a trend or a range. But for many, this is a particularly beguiling problem in the indexes. Fortunately, there are some tools that can help us here. And we teach the best one I've ever seen in our E-Mini course. But without those tools, many a trader has been caught on the wrong side of the market all day, only to look back in calmer times and see the error of their way!
Differences in the indexes. While the different personalities of the indexes give us different reasons to trade them based on conditions, set-ups, etc., they also mean that we have to learn about each instrument in order to trade them. As with most worthwhile endeavors, there is no one size fits all.
The bottom line – Trading e-mini futures indexes is a bit like driving a fine sports car – they're fast, they corner great, and they have a few idiosyncrasies. But at the end of the day, they are still the best way to get the most bang for your buck.
Join me and Wall Street maven Christopher Castroviejo on March 27 - 29 for a jam-packed three day workshop where you will learn to exploit the benefits of e-mini trading while avoiding the potholes.
Things to Love About Index E-Minis:
Liquidity. This is what allows us to enter and exit trades with a minimum of slippage. S&P 500 are among the most liquid exchange traded instruments in the world. Other index e-minis are also very liquidity and enjoy significant day trader participation. These include the Dow, the Nasdaq and the Russell 2000. More on each of these below.
Level Playing Field. With e-minis, all trades are computer matched. This means that a the trader at a terminal in Topeka, Kansas is not at a disadvantage to anyone trading e-minis around the world. The high level of liquidity also helps make a level playing field, because its almost impossible for the spreads to get bigger than one tick in the four e-minis mentioned above. (The spread is the difference between the bid and offer prices).
Leverage. Overnight leverage on e-minis is high, at roughly 20:1 for the S&P 500 e-mini. Day-trading leverage is screaming at most brokerages, with some brokerages allowing greater that 100:1 leverage. It's tougher to get a bigger bang for your trading buck than in e-minis.
Predictable Movement. One of the reasons that so many professional traders trade the index e-minis is because they have predictable price movement intraday. This means that when prices approach certain points, there is a pattern of reaction that can be exploited. This tradeable edge is a critical – and much loved – aspect of e-mini trading.
An Index Personality for Everyone. The four major indexes that are traded (S&P, Dow, Nasdaq and Russell) each have different personalities, while sharing the overall characteristics and trading styles of indexes. The S&P is a bit slow and ponderous, with great fills and minimum slippage. The Russell is the other end of the spectrum – moving quickly at the drop of a hat. Both the Dow and Nasdaq fall somewhere in between.
Things About E-Minis that We Just Have to Put-Up With
The quirks and idiosyncrasies of the e-minis are there also. Yes they do have their downsides. And just like our significant others, these are things about e-minis that we'd love to change but can't – so we just learn to live with them.
Leverage – the Other Side of the Sword. Great leverage can bring great reward. But it also brings great risk. If you have a $10,000 account that allow you to trade on $1000 margin, you can trade 10 Russell contracts. A 10 point move in your favor will double your account; a 10 point move against you will wipe you out. With leverage this high, proper risk management is absolutely critical.
The Cumbersome S&P. There are periods of time when the S&P seems to act like a huge oil tanker. Never moving outside of a narrowly defined range.
Trend Days vs. Range Days. Traders in all instruments have the problem of deciding if you're in a trend or a range. But for many, this is a particularly beguiling problem in the indexes. Fortunately, there are some tools that can help us here. And we teach the best one I've ever seen in our E-Mini course. But without those tools, many a trader has been caught on the wrong side of the market all day, only to look back in calmer times and see the error of their way!
Differences in the indexes. While the different personalities of the indexes give us different reasons to trade them based on conditions, set-ups, etc., they also mean that we have to learn about each instrument in order to trade them. As with most worthwhile endeavors, there is no one size fits all.
The bottom line – Trading e-mini futures indexes is a bit like driving a fine sports car – they're fast, they corner great, and they have a few idiosyncrasies. But at the end of the day, they are still the best way to get the most bang for your buck.
Join me and Wall Street maven Christopher Castroviejo on March 27 - 29 for a jam-packed three day workshop where you will learn to exploit the benefits of e-mini trading while avoiding the potholes.
