Greetings traders and welcome back.
Thank you for joining me again,
and if you're new, my name is Chris, and I'll be your host
today as we slide into another Survival Guide. Today's subject
will be the e-mini S&P 500.
This is the e-mini variation of the S&P 500, not to be confused.
It gives us a lot to talk about just due to the fact
that the e-mini is such a popular indice. We've got an
index here that has a collection of some of the most powerful
stocks out there, and it is a very popular futures contract
indeed. Before we get going too deep, let's go ahead
and show you how you can pull up the e-mini S&P 500 on your
charts using the finnamark platform here.
That way you can follow along, looking at price as we talk
about the e-mini S&P. Over here on the left hand side,
we're going to go ahead and click on our symbol finder and
type "/ES". After we do that, we give it a click, and we are good to go.
We've had a lot of cool action with the e-mini S&P 500 today,
and if you feel like you are on top of your game,
make sure you check out our Gauntlet E-Mini to give yourself
an opportunity to prove your skills, as well as potentially get funded.
Let's dive on into the material. Here we go.
S&P 500 e-mini futures.
What more than a smaller packaged e-mini when it comes out of the factory, right?
Well, what the heck is the S&P 500? Let's start with that.
The S&P 500 is an American stock market index that was designed
way back in 1923. I remember it like it was yesterday.
It was initially named the Composite Index, but they realized
that's not a whole lot of fun to say, and throughout the years
the index expanded tremendously to where we are at today,
including 500 of the largest companies by market cap that
are listed on the NASDAQ and the NYSE.
Today, the broad-based capitalization weighted index is considered
a vital indicator of the stock market's health. At first, when
the index was composed of fewer companies and the shares
were cheaper, investors were able to purchase it directly.
However, over time as the number of constituents rose, and
their shares became more and more expensive, investing directly
in the S&P 500 started to become very hard.
This was the moment when ETFs and futures contracts came
to the rescue to save the day. Today, investors can buy the
whole market by simply purchasing an ETF or a futures contract
directly from their broker dealer.
Nowadays, the S&P 500 is one of the most popular investable instruments worldwide.
Even legendary investors like Warren Buffett struggle
to find other instruments that deliver continuously and in
such scale as the S&P 500. The most important thing to pay attention
to with the performance of the index is that, it is increasing
over time. The figures that were produced by the S&P 500 from
the period of 2009 to 2019 reached a staggering increase of 258%
That is legendary folks. That earns us a big old WOW over here.
Analysis has also shown that the S&P 500 Index is regularly
beating 95% of active money managers.
That is a powerful statement. All that work, as well as the
fee that we're paying to the money managers, and meanwhile
just riding the S&P 500 would probably have done most people better.
We know about the S&P 500, the Big Daddy version,
but now we're talking about the smaller version. This little
guy over here. The e-mini S&P 500. The e-mini S&P 500 is an
electronically traded futures contract launched and traded
by the CME, which is the Chicago Mercantile Exchange. The
contract represents 20% of the value of the standard S&P 500
contract. The e-mini S&P 500 is often referred to just simply
as the "e-mini", and that's kind of funny because it's not entirely
accurate. There are other e-mini contracts on other indexes,
such as the NASDAQ 100, the S&P mid-cap 400, the Russell 2000,
and various other ones out there, but because of the popularity
of the S&P 500 e-mini, it has been coined that when someone
says "e-mini", they're usually talking about the S&P 500. The
S&P 500 e-mini contract itself has come a long way to become
the most popular futures contract traded globally. The e-mini
has the ticker symbol "ES", as we saw in the beginning of the
video, and it represents one of the most cost-effective ways
for investors to gain market exposure to the world's biggest
companies by market cap, making it very handy indeed, especially
to those investors that don't have a tremendous amount of starting capital.
The e-mini was introduced in 1997 with the main reason
of lowering the barrier to trading at a time when the
value to cost ratio of the existing S&P 500 contract had started
to rise exponentially. Suddenly, the index became too expensive
for retail traders, which is pretty much all of us, and unfortunately,
we didn't have a solution until, boom, 1997 arose and we were
given the e-mini to rescue the day. It quickly established
itself as the most popular index
futures contract on a global scale. Although the S&P 500
e-mini was designed to bring flexibility and affordability to the table,
it is also a preferred investment even for the biggest of hedge funds as well.
It has an appeal for the small guys, as well as the big
guys. The average daily implied trading volume for the e-mini
futures contracts is estimated somewhere between 100 to 200
billion dollars. These figures usually exceed the combined traded volume in U.S.
dollars of all of the 500 underlying stocks that make up the index itself.
When it comes to the technical parameters of the e-mini S&P
500 contract, we should definitely know that the daily settlement
prices are the same as those of the regular, full-sized contract.
This means that 5 e-mini contracts equal the financial
value of one full-size contract. In terms of functionality,
the e-mini replicates full-size contracts in full. Both of
these instruments are used for hedging and speculation with
the only difference being that, the e-mini is used by all types of traders
due to its affordability.
This is an example of what the specs will be
if you are interested in trading an e-mini S&P 500 contract:
We know that the symbol is going to be ES.
That's how we're going to locate it on our trading platform
like we already did. The contract size is going to be $50
times the S&P 500 Index. The minimum tick value will,
or the minimum tick itself, is going to be 0.25 index points
with a dollar value of 1250,
that is $12.50. Trading hours, the same. Contract months,
once again the same, nothing too crazy going on here.
Other than that, if you ever are interested in checking out
these contracts, be sure to check out our S&P 500 e-mini blog
because we do have all of this posted there as well.
To understand the main factors that effect the price of the
e-mini, it's always worth starting from the allocation of
the constituents. The S&P 500 itself consists of companies
in a variety of sectors with the following approximate allocations:
We have materials representing 2.7%, real estate being
3.1%, utilities 3.3%, energy 5%, consumer staples 7.3%, industrial
9.4%, communication surface is starting to get pretty big
here, 10.2%, consumer discretionary 10.2% as well,
then financials 13.1%, healthcare 14.2%, would you look at that?
Despite our terrible health care system in this country, it's
doing wonderful in S&P 500.
Then, we have informational technology as the biggest sector
of them all, and that is going to be things like Apple, et cetera,
and that is going to be, once again, 21.5%. Corporate
announcements, industry trends, or third
party intervention, like lawsuits or Facebook's industry
defining five billion dollar fine that they received, are
the main movers of the price separation of stocks.
Thus, the whole index itself moves as all of these individual things move.
However we put aside these different factors,
there are other factors that we should be aware of as well
that we're going to cover here in just a moment.
Other things that are heavily impacting and influencing the
price of the e-mini S&P 500 would be the Federal Reserve
policies, as well as the global economic relations and the political development.
We're going to talk about all three of these, starting
off with the Federal Reserve policies.
This is one of the major impactors that influence the direction
of the market itself. By maneuvering between interest rates,
the regulator can affect the actions of market participants
and thus impact the price of the instruments.
That's why most traders usually anticipate the FED statements
on their plans for whatever interest rate hikes might be
coming. For example, when the FED issues a statement that
it will potentially remain passive and won't increase the interest rates,
the market is instantaneously affected in most cases. Investors
usually assume that it is a good moment to abandon fixed
income instruments, and invest in real estate and stocks,
in search of higher returns. This shift usually results in a massive boost,
for the S&P 500, and obviously in turn, the S&P 500 e-mini.
Then, we have the global economic relations. An essential factor
for predicting the direction of the S&P 500 Index, and the
e-mini of course, is the state of the global economy and international
affairs. Trade wars, military conflicts, economic sanctions,
all of these events usually affect the market in a negative
way, as many of the S&P 500 constituents are global companies
with wide exposure and operations spread all across the world.
The tech companies included in the index themselves usually rely on China for
the production of key components in their products. Energy
businesses on the other hand, may rely on companies from the
Gulf, Africa, or even the Middle East for the imports of petroleum.
Consumer oriented companies like Starbucks, for example, rely
on Ethiopia, Kenya, and other African countries for the imports
of things like coffee beans.
Should there be a global conflict or instability within these
key markets, the S&P 500 of course would be affected. Then we have political
developments. One of the key examples of market moving
events are usually the presidential elections in the U.S. The
case is often the same;
One of the candidates tends to be more of a liberal market
policy favor, while the other one generally tends to be more
in favor of stricter regulations, more Republican based.
During the debate session,
the S&P 500 will usually react to every bit of news from both political camps.
The index will start to experience more frequent price fluctuations,
when it makes it harder for traders to navigate the market
and tailor to their trades accordingly.
The reason is that, the markets do not like uncertainty, which
is precisely what presidential debates are all about.
Finally, we have some smart trading tips to keep in mind as we dive
into the e-mini S&P 500 trading world.
The first tip is to always keep an eye on the liquidity and
volatility levels. The "E" in the instrument's name comes from
"electronic", and emphasizes the fact that the contract can be
traded digitally, and not in the old-school way in the trading
pits. A huge advantage of the electronic trading is higher
and constant liquidity. Traders that buy and sell can do that
more quickly in a matter of seconds, or even million microseconds
when it comes to those high frequency traders.
This ensures constant trading activity, which is good for
us. The futures contracts are so widely popular that during
those periods of low daily trading volumes, sometimes it gets sporadic,
so we want to pay attention to the liquidity. Occasionally,
liquidity levels can drop even though the vast majority of
the time, the e-mini S&P 500 is known for its legendary liquidity.
There was a time in 2018 when we had a massive stock sell
off, and that did affect the liquidity of the S&P 500, creating
a very very irregular trading session for many traders. Our
second tip is going to be, the S&P 500 e-mini can
be subject to speculative trading. Since the e-mini is one
of the most popular investable instruments worldwide,
it is also a preferred environment for market manipulating traders or speculators.
One of the most notable examples would be the flash crash
that occurred in 2010 when a single seller sold more than 75,000 e-mini contracts.
Essentially what happened is something called "spoofing". The
trader instructed his algorithms to change all of his trades
shortly before their execution, triggering a massive sell-off
caused by the fear of the orders to come, and triggering something
that lasted somewhere around a one trillion dollar market
value loss for the S&P 500, all because of one person.
Our third tip is the S&P 500 e-mini can be suitable for all
types of trading strategies. Despite this not being a
direct tip on how to trade the S&P 500,
it should be very comforting to know that due to the high
liquidity and relatively low volatility, the e-mini
S&P 500 paves the way for the application of pretty much
any kind of trading strategy.
This means we're able to use price momentum strategies through
long-term holding, to trend-following and swing trading. No
matter what we think of, there's a good chance that the S&P 500
represents a suitable market for it, and knowing that, if we
are finding that we're not getting the success that we are
interested in on, there's a chance that we are probably doing something wrong
ourselves. In conclusion, the S&P 500 e-mini is one of those beautiful
futures options that is good for almost everybody.
It's good for professional traders, including hedge fund
managers, as well as beginning traders and the newcomers. All you newbies out there.
It has a very high liquidity and relatively low volatility
market landscape that make it somewhat predictable in nature,
and I say that obviously with a bit of an asterisk at the
end because the market is the market. It is going to move.
One thing to always remember with the S&P 500,
it's one of the instruments that does tend to react first to large global scale events
so it is something to be on the lookout for during turbulent global times.
Other than that, if you feel you've got what it takes
to master it, make sure you check out our Gauntlet Mini and
give yourself a chance to prove your accuracy and become a funded trader.
Other than that, thank you for joining me again everybody.
Please click the like and subscribe button below, and I look
forward to seeing you in the next one.
Have a good day everybody, over and out.