E-mini Futures and Options: Understanding the Basics

In the world of trading, futures and options have become popular investment tools for investors seeking to diversify their portfolios. In recent years E-mini Futures and Options have soared in popularity amongst investors due to several reasons. In this how-to, we will explore the basics of E-mini futures and options, including their definition, advantages, and risks.

History of E-mini Futures and Options 

E-mini futures and options were first introduced by the Chicago Mercantile Exchange (CME) in 1997, with the launch of the E-mini S&P 500 futures contract. The success of the E-mini S&P 500 futures contract led to the introduction of other E-mini contracts, such as the E-mini Nasdaq 100, E-mini Dow Jones Industrial Average, and E-mini Russell 2000. 

What are E-mini Futures and Options?

E-mini futures and options are contracts that allow traders to speculate on the future prices of various assets, such as stocks, bonds, commodities, and currencies, without owning the underlying asset. E-mini futures and options are electronically traded contracts that are smaller in size than traditional futures and options contracts, which makes them more accessible to individual retail traders who may not have the financial resources to trade full-sized contracts. 

E-mini futures and options are based on a variety of indices. In addition to major US equity indices they are also available on a range of commodities, including gold, oil, and natural gas. Take a closer look at the E-Mini S&P 500 Futures contract.

Difference between E-mini and Full-Size Contracts 

The main difference between E-mini and full-size contracts is their size. E-mini contracts are smaller in size, typically 1/5th the size of a full-size contract and have lower margin requirements. This makes them more accessible to a wider range of traders, including retail traders, who may not have the capital to trade full-size contracts. Additionally, E-mini contracts have 24-hour trading and lower transaction costs, which can be beneficial for those looking to trade on a global scale.

Advantages of Trading E-mini Futures and Options 

There are several advantages of trading E-mini futures and options, which include: 

  1. Lower Costs – E-mini futures and options are cheaper to trade than traditional futures and options contracts. This is because they have lower margin requirements, which means traders can enter positions with a lower upfront cost. 
  2. Liquidity – E-mini futures and options are highly liquid, which means traders can enter and exit positions quickly and easily. This makes it easier for traders to manage their risk and take advantage of market opportunities. 
  3. Flexibility – E-mini futures and options provide traders with flexibility in terms of position size, which means traders can enter positions that suit their risk tolerance and investment objectives.

Where to Trade E-mini Futures and Options 

Trading E-mini futures and options is straightforward, but you must complete a few steps before placing your first trade. We will help guide you through the account opening process and endeavour to understand your investment objectives. 

At OptionsDesk, we require that you complete an application form which asks various questions about your investing experience and financial situation. This information is important as it allows us to see if option investing is appropriate for you as per the guidance of our financial regulator, the Financial Conduct Authority (FCA) and to get a better picture of how appropriate these instruments are for you.  

Once your account is open, the process of trading futures and options is simple. You can talk to us anytime during market hours to explore your objectives and trade and a broker will always be ready to answer the phone. 

There are several firms that allow clients to trade futures and options, but you should take time to understand how they operate and if these firms meet your needs and requirements. At OptionsDesk we make sure what we charge you for our brokerage service is clear and transparent, with no hidden fees. We take our duty of best execution extremely seriously and do not make money from the difference (or ‘spread’) between the bid and offer. Unlike many firms in our industry, we do not, under any circumstance, get any payment for your order flow. 

At OptionsDesk, we execute your orders on regulated stock markets and derivative exchanges. Because these trading venues are obligated to offer ‘best execution,’ you get the best possible price for your order.

Risks of E-mini Futures and Options  

E-mini futures and options are popular investment tools that offer traders access to a variety of assets. While there are advantages to trading E-mini futures and options, it is important for traders to do their research and understand the market before trading. As with any investment, traders need to be aware of the risks which include: 

  1. Volatility – E-mini futures and options can be highly volatile, which means that prices can fluctuate rapidly and significantly. This can result in significant gains or losses for traders. 
  2. Leverage – E-mini futures and options are highly leveraged, which means that traders can control a large amount of assets with a small amount of capital. While leverage can amplify gains, it can also amplify losses. 
  3. Counterparty Risk – E-mini contracts are regulated instruments traded through regulated counterparties on regulated exchanges. Whilst this significantly reduces counterparty risk when compared with trading unregulated instruments, you should nevertheless be aware that your money and investments could still be at risk even in a regulated environment.

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Important information: Derivative products are considerably higher risk and more complex than more conventional investments, come with a high risk of losing money rapidly due to leverage and are not, therefore, suitable for everyone. Our website offers information about trading in derivative products, but not personal advice. If you’re not sure whether trading in derivative products is right for you, you should contact an independent financial adviser. For more information, please read our Important Derivative Product Trading Notes.

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