Why trade equity index futures?
CME Group equity index futures, such as E-mini and Micro E-mini futures, offer you an intriguing way to pair your stock market knowledge with the advantages of futures trading to help supplement your trading in index-based exchange-traded funds (ETFs).
Flexibility plus potential new opportunities
If you trade index-based exchange-traded funds (ETFs) and you’re looking for products that can provide new opportunities, you might want to consider equity index futures. Like index-based ETFs, equity index futures closely track some of the biggest stock market indices, but compared to ETFs alone, equity index futures can offer you additional trading flexibility.
Are CME Group equity index futures something you might want to add to your trading strategies? Below, we’ll look at some key potential benefits. Keep in mind that buying stocks, ETFs, or futures always carries risk, which should be considered carefully.
Reason #1: Deep liquidity
Just like ETFs, many futures are highly liquid. High liquidity generally means tighter bid/ask spreads for efficient buying and selling.
Reason #2: No annual management fees
With futures, there are no annual management fees, while ETFs do charge such a fee, shown as the expense ratio. The expense ratio for SPDR S&P 500 (symbol: SPY) for instance, is 0.09%, while the expense ratio for Invesco QQQ (symbol: QQQ) is 0.20%. On the other hand, with futures there are brokerage commissions and possibly other trading fees.
Reason #3: 24-hour access
CME Group futures are available to trade 24 hours a day, six days a week. This means that futures give you the ability to react to market-moving information quickly, even when the stock markets are closed.1
Reason #4: Trading leverage
Due to leverage, trading futures may offer significant capital efficiencies. Leverage is the ability to use less money to gain exposure to price movement in the markets. Futures contracts get their higher leverage from the comparatively low initial margin that they typically require, which lets you control a large contract value with a relatively small amount of capital.2The example below compares hypothetical ETF and equity index futures trades.
Leverage example: ETF vs. futures trade
Futures let you control a large contract value with a relatively small amount of capital
ETF trade (DIA)
SPDR Dow Jones Industrial Average ETF
Shares purchased: $140,000
Borrow on margin, plus interest
Cash and marginable securities
Futures trade (YM)
CME Group E-mini Dow Jones futures contract
Notional value: $140,000
Reason #5: Micro E-mini contracts
Compared to other futures contracts, Micro E-Mini futures contracts from the CME Group require much less capital to trade and offer multiple ways to diversify. Micro E-Minis are one-tenth the size of E-minis, so if the E-Mini S&P 500 contract has a notional value of $140,000, then the Micro E-mini would be only $14,000. Its initial margin would be only one-tenth as well. (Margins are set by the exchange and are subject to change.)
The bottom line? With CME Group equity index futures, stock traders may be able to use what they already know about the stock market to find attractive opportunities that could supplement their ETF trading. And don’t forget that you can trade futures in both brokerage and retirement accounts, including IRAs.
What accounts are eligible for futures trading?
The bottom line? With E-mini and Micro E-mini equity index futures, stock traders may find attractive opportunities to supplement their ETF trading. And don’t forget that you can trade futures in both brokerage and retirement accounts, including IRAs.