Why They Have Grown So Fast?
by D.R. Barton, Jr.
I often get
asked the question, ďIf you could only trade one thing, what would
hesitation, I would say the S&P 500 e-mini futures contract.
tell you why. But just
for a bit of clarity, I enjoy trading and working with traders who
trade futures, stocks, options and forex.
And there are people who excel in all of these areas.
But with all of
these choices, here is my belief:
Given the right tools, strategies and mental approach, I
believe that e-mini trading is the single most powerful way to
deploy trading capital today.
where Iím spending the majority of my trading time.
Before we jump
in and look at the power of e-minis, letís cover the basics of
e-mini futures contracts.
futures have become THE instrument of choice for many traders. On a
ďdollar value traded per dayĒ basis, the S&P 500 e-mini is
one of the biggest (if not the biggest) exchange traded instruments
in the world. Currently
the S&P e-mini averages $144 billion traded per day.
Thatís 6.8 times bigger than the pit traded S&P 500
contract. (When I wrote
about e-minis at the beginning of the year, the e-minis were
out-trading their older brother by 4.5 times Ė so it has increased
its lead by 50%!) They
have experienced growth unlike any other instrument, and for good
Microsoft trades about $1.5 billion worth of shares per day.
So, if I could
only pick one thing to trade, why the S&P 500?
It has the best combination of attributes that traders need.
A major advantage for e-mini trading is the high amount of
leverage they offer. And
for day traders, this leverage is increased even further.
Letís look at the actual leverage available:
the S&P e-mini trade unit is $50 times the S&P 500
Stock Index. Currently,
that calculation looks like this:
$50 x 1550 = $77,500. The
margin to control $77.5k worth of value is around $3,500 giving you
leverage of about 22:1 on your money.
However, day trading margins drop significantly
with $1,000 margins common and some reputable firms offer $500
margins. At these rates,
you can increase your intraday margin to greater than 100:1!
remember that leverage is a double- edged sword that definitely cuts
both ways. While such
leverage allows for large returns on very little money, it can also
mean that you can lose large amounts as well.
Liquidity is usually thought of in terms of trading volume.
It is the characteristic that gives us the ability to get in out of
trade both quickly and at a preferable price (or with little to no
slippage). E-mini index
trading gives us exceptional liquidity and great fills with little
slippage. And these
attributes are very necessary to allow us to take advantage of the
∑ Exchange Traded.
I know lots of folks out there are trading forex.
And while around the world, forex has a very high amount of
spot contracts trading hands, that liquidity isnít necessarily
available to retail traders who almost always end up trading against
their brokers instead of with other traders through an exchange.
Trading a highly liquid e-mini contract through an electronic
exchange really levels the playing field for retail traders.
Certain types of trading can only be used on a
small scale and cannot be translated to larger volumes as success
occurs and larger position sizes are required.
But e-mini index trading in general and S&P e-mini
trading in particular are highly scaleable.
Getting virtually no-slippage fills on 200 S&P e-mini
contracts is an extreme advantage.
The S&P e-mini has liquidity 23.5 hours a day, which is
another advantage; the effect of overnight gaps are greatly
reduced. You can keep a
stop in the market if youíre doing a swing trade and then have
your protection kick in at a time when your IBM stock is still
weíll have a special treat for you as my good friend and market
maven Christopher Castroviejo gives us an interview on his thoughts
about the markets and the tools and strategies that are working
Also note that
Christopher and I will be teaching our new, cutting edge workshop on
e-mini index trading in Raleigh on November 10 Ė 12.
Our course this past March had a full room and great reviews
Ė we hope to see you there!
About D. R. Barton:
D.R. will be presenting his upcoming Professional E-Mini Futures Tactics
workshop, November 10-12.
A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena where he is one of the most widely read and followed traders and analysts in the world.
He is a regularly featured guest analyst on both Report on Business TV, and WTOP News Radio in Washington, D. C., and has been a guest analyst on Bloomberg Radio. His articles have appeared on SmartMoney.com and Financial Advisor magazine.
You may contact D.R. at [email protected].