Day Trading Basics

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DAY TRADING BASICS

TRADING THE EMINI S&P 500

The S&P 500® Index represents the benchmark for large-capitalization U.S. stocks. Day trading is not done using this Index but rather using a futures contract that parallels movements in the Index. This futures contract, dubbed the E-mini® S&P 500, is listed by CME Group, the largest and most diverse futures exchange in the world. It is the availability of the futures contract that makes day trading efficacious.

By relying on a futures contract, day trading is much easier, faster and cheaper than trying to construct and trade a corresponding basket of 500 stocks. And most importantly, it is a simple matter to sell a contract and then buy it back later in the day. By shorting the market, the day trader can capitalize on an expected price decline in the S&P 500 just as easily as the traditional buy-and-later-sell strategy.

The size of the E-mini S&P 500 futures is $50 multiplied by the E-mini S&P 500 futures price for that corresponding contract. So, for instance, if a day trader buys a June E-mini at 901.25 and then sells it later in the day at 903.75, then this would result in a profit of $125 (calculated as 2.50 points x $50 per point), less commission and other trading fees. The contract moves in ticks of 0.25 points valued at $12.50

While there are several fundamental factors that can affect the S&P 500 Index, intra-day price fluctuations are more typically a response to technical considerations and changing expectations. For this reason, the E-mini S&P 500 day trader needs to be familiar with the tools of technical analysis.

To day trade the E-mini S&P 500 futures requires that one first open a trading account with a futures broker and then fund that account. Cash in the account is needed to cover the futures margin - a good faith deposit that essentially shows your financial ability to handle the risk of the trade - as well as cover any loss on a trade. The margin is set by CME Group and can change. The good news is that margin for day trading is reduced considerably. It's best to check with your broker for current margin requirements or Ask a Broker.

CME Clearing serves as the counterparty to every E-mini trade to guarantee performance. In other words, if you earn profit on a trade, then you will get your money even if the party on the other end of the trade can not cover their loss.

At any given time, there is not just one E-mini S&P 500 futures but several, each expiring at a different date. As seen here, there is a futures that expires in Sep, one in Dec, one in March of the following year, etc. Each can have a slightly different price, and all different from the spot Index itself, but they all tend to move by the same amount. Day trading is usually confined to the nearby or closest-to-expiration contract in this case to the September contract since liquidity is the highest.

Learn day trading basics on the E-mini futures and options complex at CME Group with this free 36-page brochure. Topics include trading examples, defining common terms, comparing stock index futures to Exchange-Traded Funds and more. (Adobe Acrobat required.)

The following trademarks and service marks are owned by Chicago Mercantile Exchange Inc.: CHICAGO MERCANTILE EXCHANGE®, CME E-mini®, CME®, E-mini® and Globex®. The following are trademarks of The McGraw-Hill Companies: S&P®, S&P 500®.

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Futures trading involves substantial risk and is not for everyone. Only risk capital should be used.
Keywords: day trading basics, emini s&p
Abstract: Day trading basics for the Emini S&P 500 means to first understand the futures contract.