Are E-mini futures the next big thing in equity trading?

E*TRADE Futures

08/19/19

Equity index futures, such as E-mini and Micro E-mini futures, can help supplement your trading in index-based exchange-traded funds (ETFs).

Why trade equity index futures along with ETFs?

Reason #1: Deep liquidity

Just like ETFs, many futures are highly liquid. 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. ETFs, on the other hand, charge an annual fee to compensate the fund’s portfolio manager. 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%. Of course, with both futures and ETFs, there are brokerage commissions and other trading fees.

Reason #3: Nearly 24-hour access

Futures are available to trade nearly 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 equities markets are closed.1

Reason #4: Trading leverage

There are capital efficiencies to trading futures due to leverage. Leverage is the ability to use less money to gain exposure to price movement in the markets.2 As a note, when buying stocks, ETFs, or futures, there’s downside risk if the value of the asset were to decline.

Leverage example: ETF vs. futures trade

Futures let you control a large contract value with a relatively small amount of capital

ETF trade

SPDR Dow Jones Industrial Average ETF

Shares purchased: $140,000

$70,000
Borrow on margin, plus interest
$70,000
Cash and marginable securities

Futures trade

CME Group E-mini Dow Jones contract

Notional value: $140,000

$133,000
Leverage
$7,000
Initial margin

Reason #5: Various contract sizes

If the CME E-mini contracts are too large for your trading style, there are now new CME Micro E-mini contracts. The Micro E-minis are one-tenth the size of the E-mini contracts. So, if the E-mini S&P 500 contract has a notional value of $140,000, then the Micro E-mini would only be $14,000. And the initial margin would be only one-tenth as well.*

* Margins are set by the exchange and are subject to change.

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.

How can E*TRADE help?

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Open a new account for futures trading

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Looking to expand your financial knowledge?