What is an E-Mini?

An E-Mini is a futures contract based on the Standard & Poor 500 stock index. It is traded on the Chicago Mercantile Exchange. It is designed to be affordable to traders with lower sums to invest.

A futures contract is an agreement to buy and sell a particular financial instrument at a fixed price on a fixed future date. Where the financial instrument is an individual stock, the buyer may immediately be able to sell the stock at a profit if the market rate upon the contract's completion is higher than the agreed rate in the contract. In effect, both sides are gambling that they will correctly guess future movements of the stock's price. In the meantime, both sides can buy or sell their rights to the contract itself, for example, to limit their losses if they believe their prediction is proving inaccurate.

Other types of futures contract such as the E-Mini are based on a stock market index, an average of the stocks on a particular market. In this situation no stocks are actually bought and sold by the two parties in the contract. Instead, they use a notional investment amount and simply work out who would have come out better off from the deal. The party that guessed the stock price's movement incorrectly pays the relevant amount to the other party to reflect the money each would have made or lost if they really had bought and sold the stocks. This reduces the amount of cash either side needs to have available.

It is very rare for an index-based futures contract to simply cover one share in each of the companies on the index. This would be too small an amount for most investors to consider worthwhile, particularly with transaction costs. The E-Mini uses a sum of $50 United States dollars (USD) multiplied by the value of the S&P 500 index. In effect, it is as if the two parties were trading 50 shares in each of the 500 companies.

The E-Mini was introduced to accompany an existing S&P 500 based futures contract that was then valued at $500 USD times the index. This proved too large for some traders. The introduction of the E-Mini proved popular enough that several other smaller index-based futures contracts were also introduced.

One significant feature of the E-Mini is that trading is carried out electronically though the Chicago Mercantile Exchange's Globex system. This means sales of an E-Mini are recorded almost instantaneously. The larger S&P 500 future contract uses open outcry in which traders make deals on a trading floor using both shouted instructions and hand gestures.