E-Mini contracts are mini futures contracts that are traded electronically and cost only One-Fifth of a Normal Future. This allows small traders to buy and sell E-mini contracts with limited capital. E-Mini futures are traded for 23.25 hours that makes it one of the most traded and liquid counter to trade. E-Mini futures are cash-settled hence there is no obligation of Giving or taking delivery of the underlying security.
Futures & E-Mini Futures-
A Future Contract is considered as a legal agreement between the buyer and seller to exchange the underlying security of the Future at a pre-determined price and on a Future date.
Similarly, an E-Mini Futures contract is a mini format of the futures that are traded in the Electronic format and costs only a fraction of the total value of a Futures contract.
E-Mini Futures are not traded in every exchange. It is mostly traded in the Chicago Mercantile Exchange (CME). There are many counters where an E-mini future is traded such as the S&P500, Russell 2000, NASDAQ100, S&P MidCap 400, etc. It is also used to trade commodities such as Gold and currencies such as Euro.
E-Mini contracts are mainly made for small retail traders who cannot afford a Whole contract of the S&P 500 or any other index. It was started in September 1997. The cost of an E-Mini contract is only 1/5 of the value of one Future. This made it affordable for small traders. E-Mini contracts are no different from a normal Futures contract and can do everything that Futures do. E-mini contracts are settled in cash if held till expiry. This means that there is no obligation of delivery for the traders. If an E-mini contract is held till expiry then the position will be squared off and the Profit or Loss earned will be settled in the cash account of the individual.
It can be used as a Speculative tool and also as a hedging tool. E-mini contracts are very popular which makes it one of the most traded contracts and the liquidity in these contracts are very high.
Example- To buy a normal S&P Future, if one has to have to pay 30,000$ then the same Index in the E-Mini Future will cost merely 6000$. This makes it an ideal choice for trading and speculating with lesser exposure compared to a whole Future contract.
Some advantages of an E-Mini Contract-
- E-Mini contracts cost One-Fifth of a Standard Future contract.
- There is high liquidity due to the affordability of E-mini Futures, hence the execution speed is faster than Future contracts.
- E-Mini contracts are traded “Round the Clock” for a total of 23.25 hours making it an ideal counter for hedging overnight positions.
- Small retail investors and traders Find E-Mini contracts who want to take limited exposure and Risk in the Futures segment.
Conclusion-
An E-Mini Future contract works and functions exactly like a Future contract but requires only 1/5th of the total Margin required to buy a Normal Futures contract. An E-mini contract is a perfect contract for small retail traders who have limited purchasing power and the best option for New traders who want to take exposure in Future contracts as there is limited risk in an E-Mini contract compared to a Future contract. The Cash settlement in the E-Mini contract eliminates the risk of physical Delivery on the Expiry date.