Traders who wish to expand their trading tools beyond stocks, ETFs, and options may use futures to capitalize on sentiments about where the market will go. A trader who wants to use futures to trade on sentiments about the S&P 500 stock index will use E-mini S&P 500 futures.
Keep reading to learn more about what these futures are and how you can trade them.
What Is an E-Mini S&P Future?
An E-mini S&P future corresponds to the S&P 500, which is widely considered a benchmark for U.S. stocks. When the S&P moves up, E-mini S&P futures move up, too.
Futures trade on an electronic trading system that's available nearly 24 hours per day, from 6:00 p.m. EST on Sunday to 5:00 p.m. Friday. There is a trading halt between 4:15 p.m. and 4:30 p.m. each day, as well as a maintenance period from 5:00 p.m. to 6:00 p.m. Monday through Thursday.
The trading symbol for E-mini S&P futures is "ES." You'll often see them referred to as "ES" as opposed to their full name.
ES contracts correspond to a month, similar to the way options on a stock may expire weekly. The most active ES contracts are extremely liquid, and the daily trading volume typically exceeds 1 million.
That liquidity, along with the extended trading hours, makes them popular among day traders. ES futures usually experience ample volume and enough volatility on a given day to generate a profit. Futures for commodities like oil are also popular with day traders for this same reason.
ES Contract Specifications
Contract specifications are the basics a trader should know about the futures market they are trading. The contract specifications for the ES futures market are as follows:
- Symbol: ES
- Expiration months: March, June, September, and December
- Exchange: Chicago Mercantile Exchange (CME) Globex
- Currency: U.S. Dollar
- Tick size: 0.25 points
- Tick value: $12.50
- Ticks per point: Four, making each point worth $50 per contract
Knowing the tick and point value is important for controlling risk and trading the proper futures position size. A tick is the minimum amount of movement that can occur, and the tick value tells you your potential profit or loss with each tick movement.
For example, if you're a day trader and you're willing to risk $100 per trade, you could buy two contracts with a stop-loss order one point away from your entry. If the price hits the stop-loss, the loss is kept to $100. Alternatively, if you only buy one contract and set a two-point stop-loss, this results in the same $100 risk.
These specifications only apply to E-mini S&P futures. There are also "full" S&P futures, as opposed to E-mini futures, that trade for higher values. Instead of "ES," the higher value S&P futures trade with the symbol "SP."
The base symbol of the E-mini S&P 500 future is ES, but since there are multiple expiry dates for each year, the full symbol is longer. Each expiration month has a letter code. Though ES contracts only correspond to March, June, September, and December, other futures contracts may apply to other months.
|Month Codes for Futures Trading|
If you're trading the March contract, for example, the symbol is ESH. You also need to know the year. Take the last digit of the year and add it to the symbol. In 2015, the March contract symbol was ESH5. In 2017, the March contract was ESH7. The December 2019 contract was ESZ9. However, some websites and platforms use the last two digits of the year, so a trader may have seen that December 2019 contract called ESZ9 on some sites and ESZ19 on others.
Trading E-Mini S&P 500 (ES) Futures
These products can be traded through many—though not all—brokerages. For instance, traders with a TD Ameritrade or Charles Schwab account may be able to trade futures, while traders with a Fidelity or Robinhood account cannot trade futures. However, even if your brokerage offers futures trading, you will likely need to open a special margin or futures account to trade them.
The hours surrounding the stock market open at 7:30 a.m. has the best price movement and volume, making it the ideal time for day trading. The last hour of trading, from 3:00 p.m. to 4:00 p.m., also typically sees an uptick in volume, which provides better day trading opportunities than quieter hours in the middle of the day.
Practice an ES day trading strategy before trading with real money. There are several programs, including NinjaTrader, that allow traders to download historical market data and test out trading strategies whenever they like. This is beneficial for people with limited time or for people who want to practice in the evening when the market isn't active. Even if you can trade during active hours, it may be best to stick to practice until you learn the ropes.
Risk management is paramount for successful ES trading. How much you start trading with will depend on your strategy and how much you are willing to risk per trade. It's recommended that traders start day trading with at least $3,500. That should be considered the minimum, and preferably, a day trader would have closer to $7,000 before they start placing trades. To swing trade ES futures—which means keeping positions open overnight—it's a good idea to have even more funds available. Swing traders might consider $10,000 the bare minimum for getting started.
E-Mini S&P 500 Margins
Day traders have lower margin requirements than traders who hold futures positions overnight. A margin requirement refers to how much money a trader can borrow to enter a position (in this case, buy an ES contract). While swing traders can only borrow up to 50% of the price of entering the trade, day traders can borrow up to four times their cash on hand.
For example, if a trader has $4,000 in cash in their account, they can buy ES contracts worth $8,000 if they plan on holding the position overnight. However, if they plan on selling the contract before the end of the day, that trader could buy $16,000 worth of ES contracts. This provides the opportunity for greater profit, but also greater loss.
These rules refer to the minimum regulations established by the Securities and Exchange Commission. Your specific limitations will depend on the brokerage you use, and whether they have chosen to place tighter restrictions than the federal minimum. Also, note that these examples don't address maintenance requirements and the minimum equity requirement of $25,000 for pattern day traders.
S&P 500 (ES) Holidays
In general, the ES futures market is open for trading Sunday night through Friday night, every week. However, there are exceptions for the holidays, which can be found on the CME Holiday Calendar. There are trading hour alterations or closures around national holidays. In 2020, a national holiday is scheduled for every month except March, June, August, and October. In all other months, there is at least one trading day affected by a holiday.
- E-mini S&P futures (ES) offer a way for traders to capitalize on their sentiments about where the S&P 500 index will move in the future.
- ES contracts correspond to a specific month that is the expiration month.
- Unlike stocks, ES contracts trade at nearly all hours of the day and night from Sunday night through Friday night.
- The extended trading hours and liquidity of these products make them popular with day traders.