Thinking of diving into trading e-mini futures contracts? This article introduces e-mini futures trading strategies that you can use to make profitable trades.
What Are E-Mini Futures?
E-mini futures (also called emini) are futures contracts that are a fraction of the price of a standard futures contract they represent and use the Globex symbol ES. It is mainly traded on the Chicago Mercantile Exchange (CME) where the first e-mini contract was also introduced in 1997. Before, only the big players could afford trading standard futures contracts, so to entice small traders and non-professional investors, CME launched a more affordable E-Mini S&P 500 which was one-fifth the size of the standard S&P 500 and only required one-fifth of the margin to trade.
E-mini products are available on a wide range of indexes, commodities, and currencies but the most popular is the E-Mini S&P 500. This e-mini product is traded on the CME from Sunday to Friday, 6:00 pm to 5:00 pm ET with a trading halt from 4:15 pm to 4:30 pm. The value of a single E-mini S&P 500 contract is $50 times the value of a full-sized contract, meaning the contract size is reduced. The contract size is the specific amount of the underlying asset to be delivered.
Why should you consider trading e-mini futures? Below are some advantages:
- Low costs. From the beginning, trading e-mini futures have been positioned as affordable and this is probably the best reason as anyone can trade futures for just a fraction. Also, tight bid-ask spreads help in reducing the costs.
- Almost 24/7 trading. E-mini futures contracts are very accessible. If an important event takes place, you can trade accordingly.
- High liquidity. The E-mini market is deep and liquid so there is a great number of both buyers and sellers.
- High volatility. The E-mini market has a high daily activity which means that traders have many trading opportunities. This is beneficial for day traders.
- Low entry requirement. In stocks, a trader is classified as a Pattern Day Trader and would need to have a minimum account balance of $25,000. But for e-mini futures, the minimum deposit can go as low as $1,000.
- Low margin rates. Compared to full-sized futures contracts, an e-mini futures contract can be traded for as low as $500 intraday margins.
- Various trading options. Over time, the selection of e-mini futures contracts has increased. Aside from the popular indexes, you can now trade specialized e-mini products from the technology and utility sector.
- Low tax rates. Trading e-mini futures is taxed at a blended rate, unlike trading forex or stocks. 60% of profit made is taxed as long-term capital gains plus 40% as short-term capital gains.
Trading e-mini futures is great for beginners who do not have enough capital yet but since the market for e-mini futures is highly volatile, extra caution should be taken. There might be a tendency for new traders to overtrade since there are a lot of trading opportunities.
Trading E-mini Futures For A Living in Any Market
Trading e-mini futures contracts can be very profitable and become a source of income. Since e-mini futures products are affordable, every trader can make it possible. But how do you start doing it?
How Do You Trade E-mini Futures?
Before you start trading, you need to do your research first. Delving into e-mini futures trading or any type of trading without any prior knowledge would only result in failure. E-mini futures trading is similar to stock trading in a way except in an e-mini
futures contract, you will control a lot of capital.
When getting into e-mini futures trading, you will need to find a broker who specifically offers it. Next is to find an easy-to-use trading platform that is also packed with features. You will need to select a platform that will allow adding trades directly on the chart and also has a useful selection of indicators. There are some trading platforms that might cost a lot, but there are also free trading platforms. You should weigh each trading platform’s features first and decide whether they are going to be beneficial for you.
Having your own trading methodology is also important. This will serve as your guide throughout your trading session. Included in your methodology should be your risk management so when you have funded your account and are ready to trade, you know where to place your profit target and stop-loss order.
How Much Money Do You Need To Trade Emini Futures?
It depends on your chosen broker as there are some who offer accounts with only $500 as the minimum deposit.
More well-known brokers can go as high as $10,000. As long as you have enough money in your account to fund trading margins, you can trade e-mini futures.
Usually, futures contracts require a 10% initial margin.
Can You Make Money Trading E-Mini Futures?
Yes, you can definitely make money by trading e-mini futures contracts.
Although this would still depend on your account size and the risk you are willing to take. For a beginner trader, the recommended risk of loss should only be 1% of your account.
Take positions that are proportional to your account size and put risk management tools in place so that you can make the most out of your e-mini futures trading.
Best Emini Futures Trading Strategy
A well-thought-out strategy would give you an edge with your e-mini trading and be more profitable. It should also be suitable for the current market environment to get the best out of it.
Let us discuss the different e-mini trading strategies that have been proven and tested over time:
- Trend following trading strategy. This is probably the most popular and most reliable strategy to make huge profits. The simple logic of this strategy is to buy when the price goes up quickly and sell when the price goes down.
- Momentum strategy. This trading strategy works well when there is a period of high volatility in the futures market. Traders capitalize on the spike in the momentum of price or order flow by buying when the price is on an uptrend and then sell when it loses momentum.
- Breakout strategy. Like the trend-following strategy, a breakout strategy can also offer many opportunities to maximize profits. These opportunities can be captured with high risk to reward ratios. In this strategy, traders look for the price breaking a key support or resistance level before taking their positions.
- Time and calendar strategies. Both of these trading strategies are based on time irregularities. The futures market has a distinct behavior at different times of the day such as being more active during the opening, then mellows down in the afternoon, and then activity picks up again at the end of the day. In calendar-based irregularities, it has been observed that the E-mini S&P 500 has more gains during the months of November through April, while it performs poorly during May through October.
Micro E-mini Strategy
A micro e-mini futures contract is a smaller version of an e-mini futures contract at 1/10th of the size of its counterpart. This product is an even more cost-efficient offer from the standard e-mini futures contract and lets investors have easier access to the four major liquid index futures markets: S&P 500, NASDAQ 100, Dow Jones, and Russell 2000.
When trading micro e-mini products, you can use the same trading strategies that are used on larger contracts.
The trading strategy you use will depend on your trading goals. You can diversify your portfolio by trading multiple micro e-mini futures contracts as these products allow flexibility to your account.
Day Trading E-mini Futures
Since the e-mini futures market is highly volatile and liquid, day traders will be able to find many trading opportunities in any futures market. This is the best advantage of trading e-mini futures contracts but this can also pose a high risk for beginner traders.
In order to make day trading e-mini futures successful, first, you need to find the best timesto trade your chosen market. In the e-mini futures market, the best time to trade is in the morning when there is a high volume. You also need to lay down your own rules and goals that you need to stick to. Discipline is a crucial attitude when it comes to day trading because there is a chance of overtrading due to the many trading opportunities found in this particular market.
However, a plan is not going to succeed without a good trading strategy. One important part of trading is tailoring your strategy to your goals. Having a strategy that is suitable to your plan makes trading easier.
You will know what to look for and make decisions based on it. Setting up risk management tools is also a vital part of the strategy to lower your risks.
Day trading e-mini futures can be profitable as long as you make careful and calculated decisions.
How Much Money Can Day Traders Make?
Traders who make money from day trading usually earn 20% to 30% in annual return.
However, their earnings highly depend on their risk management and trading strategy.
Most profitable traders only risk 1% of their accounts to mitigate any losses. Getting high profits is possible with day trading but this will require discipline, commitment, and focus from the trader.
E Mini S&P 500 Trading Signals
When it comes to the e-mini S&P 500 futures contract, traders use moving averages, volatility, volume, and price action as their trading signals.
These allow traders to anticipate any market movements that may be trading opportunities. For these trading signals, indicators such as Bollinger Bands, Exponential Moving Average, and Moving Average Convergence Divergence are used to gain insight into market behavior.
What Are Trading Signals?
Trading signals trigger an action, either to buy or sell an asset. Traders use these signals in accompaniment with their strategy to highlight trading opportunities. The term “signal” is usually interchanged with indicators but the difference between them is that an indicator is a mathematical algorithm that triggers the signal to happen. Technical analysis is the basis of the basic trading signals and it goes hand-in-hand with indicators as well.
How Much Money Can I Make Trading Futures?
There is no exact number on how much money you can make daily, monthly, or annually because how much you can earn depend on a lot of trading factors such as:
- Risk management
- Amount of time to trade
You can expect that you might not make money when you are just starting but this would provide you experience that you can apply to future trading sessions.
Keep practicing your strategy and adjust it if necessary until you find the right formula that will give you good results.
It might take time but if you are committed to trading futures, then the right time will come.
You also need to keep in mind that not losses are inevitable, but with good risk management, you can keep those losses manageable.
How Do You Manage Risk Trading Futures?
The golden rule of risk management when trading futures contracts is to not risk more than 1% of your account.
This means that if you have $20,000 in your account, you should not incur more than $200 of loss in a single trade.
Trading losses can’t be avoided but risk management tools help in reducing them. Trading using stop-loss orders is the best way to manage risks.
Which Trading Platform Is Best For Futures?
There are a lot of available futures trading platforms that offer futures trading in many markets. All of them aim to help the trader with their trading needs with different kinds of features in their platform. But when selecting your preferred trading platform, here are some of the important considerations that you should look at:
- Easy to use
- Large range of markets
- Low commission rates
- 24/7 trading capability
- Fast trade execution
- Clear order types
- Risk management tools
- Access to support