Don Miller’s E-Mini Strategy Course, Part II
The Similarities And Differences Between Trading Stocks And Futures
In Part II, I want to cover the mechanical
similarities and differences between trading the E-minis and stocks.
Let’s take a look at the basics. With both E-minis and stocks, you can go long
and then close your position by selling. Also, you can short the E-minis just as
you can short a stock. But there is a big difference. Whereas with a stock you
have to wait for an uptick, there is no such requirement with the E-minis. In
essence, it is just as easy to short an E-mini as it is to go long. More about
this later.
What Exactly Are You Trading?
Then there is also the issue of “what” you are trading. With stocks, you are
trading “shares.” However, with E-mini futures, you are trading “contracts.” A
futures contract is a legally binding agreement to buy or sell a specific item,
at a specific price, and before a specific expiration date.
Many stock traders get hung up on this concept, but from a practical standpoint,
you are still trading on the basis of price action.
The main thing you have to keep in mind as an E-mini trader is that there are
four contract months: March, June, September and December. Let’s say that you
are holding a December contract going into expiration month, but you want to
hold that position for a longer period of time. You can “roll” the position
forward into the June contracts by simultaneously selling your December contract
and buying the March contract.
What Happens When The Price Moves?
When you are long or short the S&P E-mini, you should know the following:
The ES is priced in 25-basis-point increments (i.e. 920.00, 920.25) and equate
to $50 per contract in profit or loss for every 100-basis-point move (920.00 to
921.00).
So, if you are long one S&P E-mini contract, and the price moves up 500 basis
points, your contract value will increase in value $250.
When you are long or short the Nasdaq-100 E-minis, a different point increment
is used:
The NQ is priced in 50-basis-point increments (i.e. 980.00, 980.50) and equate
to $20.00 per contract in profit or loss for every 100-basis-point movement
(i.e., from 980.00 to 981.00).
Therefore, if you are short one Nasdaq-100 E-mini contract, and the price moves
down 500 basis points, your contract value will increase in value $100.
What Kinds Of Orders Can You Place When Trading E-Minis?
As with stocks, you can place both limit orders and market orders. However, when
placing stops, you must be aware that the Globex only accepts Stop-Limit orders.
In this kind of order, you must specify a limit price when placing your stop.
Once the stop price is reached, the stop-limit order becomes a limit order to
buy or to sell at the specified price.
Most stock traders are familiar with stop-market orders. This means that once
the stop price is reached, the order becomes a market order. Globex does not
accept these.
There are many other details that I could include in this introduction, but my
main purpose is to convey the idea that if you are stock trader, E-mini futures
are not as exotic or hard to understand as you may think they are. Please
consult your broker in order to gain an in-depth knowledge about the mechanical
intricacies of E-mini trading. To give you give a better understanding of why so
many stock traders are shifting their focus to the E-minis, in Part III I’ll take you
through some of their advantages.
Don Miller