How Futures Work

Whether you are new to futures trading, or been trading futures for years, it is imperative that you fully understand the fundamentals of how futures work. Here I’ve outlined some basic concepts along with specific details of the S&P500 (SP) and the E-mini S&P (ES).

The S&P500 vs. the E-mini S&P

The S&P500 Index is the true benchmark for the stock market as it is made up of 500 stocks versus the Dow Jones Industrial Average’s 30. The main difference the S&P (big) and E-mini S&P (mini) futures contracts are the value at which they represent.

The “Big”

The “Big” contract is traded in the Open Outcry trading pit at the Chicago Board of Trade pit and then switches over to the electronic CME Globex exchange after hours. The contract size is $250 x the S&P500 and trades in $0.10 increments also known as ticks valuing $25 a piece. One point or 10 ticks then equals $250. The S&P 500 contract is still traded today, but more and more traders are turning to the E-mini S&P.

The “Mini”

The “Mini” contract is only traded on the CME Globex exchange and the contract size is 1/5th the “Big” at $50 x the S&P500. The smallest increment (one tick) is $0.25 and thus 4 ticks equal one point or $50. The E-mini S&P contract is the vehicle of choice for most traders as it is one most liquid and affordable to trade.

S&P500 Contract Specifications

Here are two videos from the CME explaining more about the E-mini S&P futures work…

Market Hours (CST)

The “Big” contract opens up Monday at 8:30 AM in the Open Outcry pit, and then closes from 3:15 PM to 3:30 PM before reopening on the Globex exchange. The “Mini” contract is open Sunday at 5:00 PM to Friday at 3:15 PM, closing each day from 3:15 PM to 3:30 PM.

Here is the full list of market hours.

Futures Contract Symbols

On most charting packages the contract symbols are SP or SPU for the S&P 500 and ES for the E-mini S&P. On the big this is followed by the last digit of the current year so for 2001 the big S&P would read SPU1. The E-mini S&P contract symbol represents the month in which it is expiring. The futures contract month code are H, M, U, or Z (March, June, September, December), therefore the March 2011 E-mini S&P contract would read ESH1 (this varies slightly across different platforms).

Expiration & Rollover

Futures and options contracts are subject to expiration. These two vehicles trade in 3 month increments expiring on the third Friday in March, June, September, and December. For futures contracts, the second Thursday of the month (Thursday before expiry) is known as rollover. On this date (or the day after), traders shift to trading the next month’s contract and volume from the next months contract surpasses the current month.

Market Holidays

The stock market closes on the following days…

  • New Year’s Day
  • Martin Luther King, Jr. Day
  • Washington’s Birthday
  • Good Friday
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving
  • Christmas
Some additional notes:
  • The Day after Thanksgiving the market has a tradition of closing early at 1:00 PM on this day.
  • Then any holiday observed by the stock market falls on a Saturday, the market will not be open for business on the proceeding Friday.
  • When any holiday observed by the stock market falls on a Sunday the market will not be open for business on the following Monday.

Here is a link to the CME market holiday calendar specifics for each vehicle.

Best Times to Trade

The E-mini S&P is one of the top three liquid markets in the world; the other two being treasury bonds and the Euro. This however, does not mean that liquidity is present 24-7. The highest volume times are at the Euro open (2:00 AM CST) and the NYSE open (7:00 AM CST). These make for the best times to trade.

Typically volume slows from 10:30 AM to 12:30 PM as many traders are at lunch. Trading with the volume allows for greater participation and reduces slippage when getting in and out of positions.

Here are a list of books that offer more insight to how futures work, thanks for reading and feel free to leave your comments below!

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About Tim Racette

Tim is a full-time trader in the futures and stock markets and founder of EminiMind.com. He is also a Chicago-land native, competitive mountain biker, adventurer, and ASU Sun Devil.

7 Responses to “How Futures Work”

  1. Your generous sharing and teaching are always giving a lot of insight to the newbie and experiences trader. Thank you so much =)

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  3. I have a stratigy I wouls like to share and get your feed back
    1. Call and put buy on sp then 5 minis in the market direction with a 5 point trailstop
    2. Once stopped buy new mini in new direction sell any profitable option and buy a new call and put at the money. Sell all profits at day end

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