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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

E-Mini

What it is:

An E-mini is a stock index futures contract that is electronically traded on the Chicago Mercantile Exchange (CME) and is 1/5 the size of a standard stock index futures contract.

How it works (Example):

An E-mini S&P 500 futures contract is valued using the following formula:

E-mini S&P 500 contract value = ($50) x (S&P 500 stock index)

As the price of the S&P 500 fluctuates, the price of the S&P 500 E-mini futures contract fluctuates as well.

For example, if the S&P 500 is trading at 1200, the S&P 500 E-mini futures contract would be valued at $50 x 1200 = $60,000.

An E-mini moves in "ticks" or price increments of 0.25 index points or $12.50. So if the price of the S&P 500 futures increases by 0.25, the value of the E-mini S&P 500 will go up by $12.50.

E-mini S&P 500 contracts expire on a normal quarterly schedule with expiration dates in March, June, September, and December of each year. E-mini contracts typically trade on the CME and they only trade electronically.

E-minis also exist for other indices, including the Nasdaq, Dow Jones Industrial Average (DJIA) and several commodities indexes.

Why it Matters:

E-mini contracts are much more affordable to individual investors than regular sized stock index futures contracts.  They also offer a way to trade outside of normal trading hours. In fact, the S&P 500 E-mini contract trades 23.5 hours a day.

E-minis can be more liquid than standard futures contracts and have lower commissions -- but they can also be more volatile. For these reasons, more E-minis trade on the S&P 500 than standard S&P 500 contracts.

Because they are only 1/5 the size of a standard futures contract, they only require 1/5 the margin to trade as well (note that margin requirements vary by broker, however, and with leverage comes risk).

[InvestingAnswers Guide: Everything You Need to Know About Trading Stock Market Futures in an IRA]

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