Emini Trading Basics: What Is Emini Trading?

A lot of people wish they could trade in the stock market and make money like they see rich folks do.  But they are intimidated by the complexity of stock data analysis and the large capital needed.  For these people, emini trading can serve as a more viable option than the stock market, or perhaps as a “safe” introduction to it.

To understand eminis, we need to step back farther and explain some basics of the stock market and financial trading.

Emini Trading: The Stock Index

The stock market is a place where everyone can buy and sell parts of a company that represent its worth.  These parts are called “stocks.”   The prices of stocks change as buying, selling and a host of economic and political factors occur.  Now the stock market does more than just make money for investors and brokers; it also stands as an indicator of a nation’s economy.   Since there may be literally thousands of companies listed in the stock market, it wouldn’t be easy to keep track of all the listings; nor would it necessarily reflect the true status of the economy.  To help give a clearer picture of things, the stock index was invented.   A stock index is a selection of companies’ stocks and their average value.  For example, the Dow Jones Industrial Average computes 30 major stocks listed in the New York Stock Exchange and Nasdaq.  Because the Dow lists major stocks, it says a great deal about the status of the economy even though the list is quite limited.  Another use for a stock index is to isolate a particular sector or industry for analysis- for instance, the Dow Jones Utility Average focuses on electric and gas stocks.

Emini Trading: Futures Trading

Instead of trading stocks, some people would rather trade futures contracts on the value of stock indices.  A futures contract is an agreement to buy or sell a commodity or asset at a specified date.  When you engage in future trading, you aren’t interested in the commodity itself; you’re only after the futures’ prices.  It’s the old “Buy low, sell high” thing.  Future contracts were traditionally used for agricultural produce where farmers and merchants would agree on a price before the harvest.  Nowadays you can also do future trading on currencies, metals, and stock indices.

Most stock index trading in the United States occurs in the Chicago Mercantile Exchange or CME.  Unfortunately, this kind of trading requires a large capital.  What if you want to trade on a smaller scale?

Answer: emini trading.

Eminis are so-called because they are small-scale, internet-versions of the CME futures contracts.   For instance, the emini version of the S&P 500 futures is only 1/5 of the standard.   That means you can open an account with a broker for a much smaller amount than in a traditional setup.  You could start trading for as little as $5,000 instead of $25,000.    In addition, trading takes place online 24 hours a day, 7 days a week at greater liquidity.  Given these advantages, it’s obvious why emini trading is gaining popularity among small-time investors and novice traders.  It is simply a cheaper, electronic version of stock index futures.

Posted in: Emini Trading |