Intro to Trading the E-Minis

If you are new to trading, it is important that you understand some core concepts before proceeding.

What Are E-minis?

E-minis are electronically traded futures contracts that represent a fraction of their larger counter-part. Unlike stocks, where you are buying and selling actual shares in a company, E-minis are futures contracts, which is a contract between a buyer and a seller to deliver commodites at a certain point in the future. There are futures contracts for a wide variety of things (corn, oil, copper, wheat, soy, etc). Typcially, when it comes to trading or speculating in the futures market, you would buy/sell Index futures (S&P 500, Dow, Russell 2000, etc).

Every futures contract has an expiration date, and for our purposes, we generally trade the contract with the closest expiration (also call the "Front Month").

Most e-minis expire every 3 months:

  1. March
  2. June
  3. September
  4. December

The expiration date is the third Friday of the expiration month. It is important to note that 8 days before expiration is known as "Rollover Day"; that is the day most people rollover to the next contract.

For example, for September 2018, the lead contract would expire on the 3rd Friday of the month, which is September 21st. If you had been trading the September 2018 contract all month, you would want to start trading the December 2018 contract on "Rollover Day", which would be September 13th (8 days before expiration). Note that you still CAN trade past rollover day, but the volume on that contract will start to dwindle and price action will become much more erratic.

What do you need to start trading?

You need the following things before you can start strading:

  1. Trading Capital (ideally $5000 minimum)
  2. Brokerage Account
  3. Charting Software
  4. Trading Strategy (Trade With The Trend)

How much trading capital do you need to start trading?

Since many people who trade the e-minis are day-traders or swing traders, most brokerages will allow you to trade the e-minis on margin, which means you don't have to have enough money to make a full "purchase" on a contract. Instead, you can trade a certain number of contracts based on how much you have in your trading account.

Some brokerages will allow you to trade 1 contract for every $500 you have in your account. We DO NOT recommend this at all, and you can very quickly wipe out your entire account (and even end up owning your broker money!). For new traders, it is recommended that you trade no more than 1 contract for every $5000 in your account.

It is also very important to keep in mind that trading can be very risky, and you can risk losing ALL of you trading capital. It is very important to have a sound money management plan to limit your risk. You should also NEVER use money that can put you or your family at risk of losing your home or other valued possession. Your trading capital should ALWAYS be viewed as speculative and you should ensure that your life would not be severely impacted if you lost ALL of you trading capital.