Futures trading involves substantial risk and is not suitable for all investors
Tuesday, May 25, 2010
Monday, May 24, 2010
What is an E-Mini (Stock Index Future)
E-Mini S&P, often abbreviated to "E-mini" and designated by the commodity ticker symbol ES, is a stock market index futures contract traded on the Chicago Mercantile Exchange's Globex electronic trading platform. The notional value of one contract is US$50 times the value of the S&P 500 stock index.
It was introduced by the CME in 1998 after the value of the existing S&P contract (then valued at $500 times the index, or over $500,000 at the time) became too large for many small traders. The E-Mini quickly became the most popular equity index futures contract in the world. The original ("big") S&P contract was subsequently split 2:1, bringing it to $250 times the index. Hedge funds often prefer trading the E-Mini over the big S&P since the latter still uses the open outcry pit trading method, with its inherent delays, versus the all-electronic Globex system. The current average daily implied volume for the E-mini is over $140 billion, far exceeding the combined traded dollar volume of the underlying 500 stocks.
Following the success of this product, the exchange introduced the E-mini NASDAQ-100 contract, at one fifth of the original NASDAQ-100 index based contract, and many other "mini" products geared primarily towards small speculators, as opposed to large hedgers.
In June 2005 the exchange introduced a yet smaller product based on the S&P, with the underlying asset being 100 shares of the highly-popular SPDR Exchange-traded fund. However, due to the different regulatory requirements, the performance bond (or "margin") required for one such contract is almost as high as that for the five times larger E-Mini contract. The product never became popular, with daily volumes rarely exceeding 10 contracts a day.
The E-Mini contract trades 23.5 hours a day, five days a week, on the March quarterly expiration cycle.
Futures trading involves substantial risk and is not suitable for all investors
It was introduced by the CME in 1998 after the value of the existing S&P contract (then valued at $500 times the index, or over $500,000 at the time) became too large for many small traders. The E-Mini quickly became the most popular equity index futures contract in the world. The original ("big") S&P contract was subsequently split 2:1, bringing it to $250 times the index. Hedge funds often prefer trading the E-Mini over the big S&P since the latter still uses the open outcry pit trading method, with its inherent delays, versus the all-electronic Globex system. The current average daily implied volume for the E-mini is over $140 billion, far exceeding the combined traded dollar volume of the underlying 500 stocks.
Following the success of this product, the exchange introduced the E-mini NASDAQ-100 contract, at one fifth of the original NASDAQ-100 index based contract, and many other "mini" products geared primarily towards small speculators, as opposed to large hedgers.
In June 2005 the exchange introduced a yet smaller product based on the S&P, with the underlying asset being 100 shares of the highly-popular SPDR Exchange-traded fund. However, due to the different regulatory requirements, the performance bond (or "margin") required for one such contract is almost as high as that for the five times larger E-Mini contract. The product never became popular, with daily volumes rarely exceeding 10 contracts a day.
The E-Mini contract trades 23.5 hours a day, five days a week, on the March quarterly expiration cycle.
Futures trading involves substantial risk and is not suitable for all investors
Friday, May 21, 2010
Should E-Mini Futures and the Rest of Wall Street Have More Circuit Breakers?
It seems like the knee-jerk reaction to the “Flash Crash” in the markets is the call for yet more regulation on Wall Street, in particular the implementation of even more circuit breakers. Congress seems to think that in the event, or series of events, that causes the market to move swiftly down (nobody seems to be worried about a big rally….sorry short sellers) these impediments would slow the decline. Would they really turn around a tide? Yes, it may slow things down a bit, but in my opinion, the market is going to do what it wants. If anything, limits just generate pent-up momentum so when the limit, or circuit breaker is surpassed and the flood gates open, the surge is huge.
Instead of adding limits to markets like the E-Mini futures, why not increase the communication between the various exchanges so that the markets can be monitored holistically, not just independently. Work on understanding how things like the E-Mini futures and other markets trade and fit into the whole instead of creating false floors that are just going to give way. We can’t stop a bear market. It seems like Congress wants to legislate its way to a bull market. I understand that there is a difference between trying to eliminate big, crash-like days but one gets the impression that Congress both wishes to punish Wall Street for the ills of the world and at the same time, legislate a bad day away.
Futures trading involves substantial risk and is not suitable for all investors
Instead of adding limits to markets like the E-Mini futures, why not increase the communication between the various exchanges so that the markets can be monitored holistically, not just independently. Work on understanding how things like the E-Mini futures and other markets trade and fit into the whole instead of creating false floors that are just going to give way. We can’t stop a bear market. It seems like Congress wants to legislate its way to a bull market. I understand that there is a difference between trying to eliminate big, crash-like days but one gets the impression that Congress both wishes to punish Wall Street for the ills of the world and at the same time, legislate a bad day away.
Futures trading involves substantial risk and is not suitable for all investors
Tuesday, May 18, 2010
Gold Futures vs Gold ETF's
We found an excellent video produced by the CME which will help you understand which one of these is the best way for you to particiate in the gold market: http://www.cmegroup.com/education/interactive/webinars-archived/gold-futures-vs-gold-etfs.html
Futures trading involves substantial risk and is not suitable for all investors
Futures trading involves substantial risk and is not suitable for all investors
Friday, May 14, 2010
A Billion E Mini Trades?
The big meltdown last week in the stock market generated unprecedented finger pointing from Capitol Hill to Main Street. During this storm of criticism some market pundits and more than a politician or two began pointing to a nefarious E Mini trader. Was this perhaps a rogue trader at work in the E Mini market? During the hunt for a proper scapegoat it was offered that this unnamed trader “fat-fingered” his or her keyboard and entered a billion trades at one time instead of the million that was intended. Ahh, a smoking gun. Newspapers were sold (more accurately, mobile devices clicked on to the news app of their choice) and the cause of the meltdown rested in the E Mini trading court.
Now, for the truth. According to an article today from Reuters, the trader in question was identified as the money manager, Waddell & Reed Financial, Inc. However, instead of the billions or millions of trades tossed out by the media, according to Gary Gensler of the Commodity Futures Trading Commission during congressional testimony that Waddell sold 75,000 E Mini contracts during the tumultuous period on May 6. Also trading during this period were Jump Trading, Goldman Sachs, Interactive Brokers, JP Morgan Chase and Citadel Group. Gensler said that there was no suggestion that the trader at Waddell did anything wrong in entering the orders to sell. He went on to point out that the E Mini trades appeared to be part of a bona fide hedging strategy.
During this 20-minute period, a total of 842,514 E Mini contracts were traded. Further, CME spokesman Allan Schoenberg said that “We found no evidence of improper trading activity or erroneous trades by CME Globex customers.”
Does this tell us what happened on May 6? No, but it does clear up what didn’t happen.
Futures trading involves substantial risk and is not suitable for all investors.
Now, for the truth. According to an article today from Reuters, the trader in question was identified as the money manager, Waddell & Reed Financial, Inc. However, instead of the billions or millions of trades tossed out by the media, according to Gary Gensler of the Commodity Futures Trading Commission during congressional testimony that Waddell sold 75,000 E Mini contracts during the tumultuous period on May 6. Also trading during this period were Jump Trading, Goldman Sachs, Interactive Brokers, JP Morgan Chase and Citadel Group. Gensler said that there was no suggestion that the trader at Waddell did anything wrong in entering the orders to sell. He went on to point out that the E Mini trades appeared to be part of a bona fide hedging strategy.
During this 20-minute period, a total of 842,514 E Mini contracts were traded. Further, CME spokesman Allan Schoenberg said that “We found no evidence of improper trading activity or erroneous trades by CME Globex customers.”
Does this tell us what happened on May 6? No, but it does clear up what didn’t happen.
Futures trading involves substantial risk and is not suitable for all investors.
Tuesday, May 4, 2010
Updated Course
The Easy-Emini course has been completely updated and now includes complete tutorials on trading indicators and technical analysis techniques. The new course is now 59 pages and is a must read for new E-Mini traders or those that have been frustrated by their results and need a fresh look at the markets.
Take a look: http://www.easy-emini.com/
Futures trading involves substantial risk and is not suitable for all investors.
Take a look: http://www.easy-emini.com/
Futures trading involves substantial risk and is not suitable for all investors.
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