Pros and Cons of Trading the E-Mini Futures Contract

Let’s start with a definition. An E-Mini futures contract is a smaller version of a bigger futures contract. While there are mini versions of just about any futures contract now, the predominant market is stock index sector. Of that, the mini version of the S&P 500 futures contract traded on the Chicago Mercantile Exchange is the unofficial “king” on the E-Mini’s. It should also be noted that the “E” in e-mini comes from the fact that these are all electronically traded and do not inhabit the trading pits.
First, it should be said that futures trading is not for everyone. I will outline some “pro’s” for you along with an equal amount of “con’s.”

The Pro Side of E-mini Trading
Low Entry Cost While the initial deposit amount varies with each brokerage firm, the bottom line is that the margin or up-front deposit required to trade the E-Mini stock index futures are around $5,600 and many firms require half of that amount if you wish to day-trade it.

More Control With the advent of electronic trading you have the ability to see actual bid and offer prices along with volume numbers which allows you to see the playing field better as opposed to a pit traded market.

Cheaper In comparison to buying and selling the actual stocks, the E-mini allows the investor the ability to participate in an entire basket of stocks all at one time as opposed to trying to individually buy all of those stocks individually.

The Con Side of E-Mini Trading

Fast is not always good Electronic markets such as the E-mini can move very rapidly. Unfortunately, the E-mini can be the siren song for new investors and with the connotation that it is easy to make money, newbie’s can lose a lot of money in a hurry. Just because you are only losing $200 on a trade isn’t o.k. if you string twenty of those losers together.

Overtrading The tendency is for traders of E-Mini’s is to treat it like a video game. In an electronic medium, it is easy to throw good money after bad.

Costs If you become a victim of overtrading commission costs can add up fast. Even at discount rates those can severely impact you account value.

Conclusion: I think the E-mini is a versatile and useful investment tool. Those that come armed with a trading plan and lots of discipline have a great chance of being successful. Those that rush to join the E-mini party will sadly become a grim statistic.

Futures trading involves substantial risk and is not suitable for all investors.