Swing Trading the E-mini Transcript
1. Title Slide 2. Good day traders, this is Roger Scott from Market geeks and I hope each and every one of you is having a great day. Today I have a new tutorial for you, but before I begin, I want to remind you to visit MarketGeeks.com for your free swing trading report and subscribe to our channel for new swing trading videos and trading tips. 3.
Whenever the market becomes a bit more volatile than usual I get tons of emails and calls asking me if swing trading the e-mini is a good alternative to the traditional buy and hold trading method. This week is no different, the U.S. stock market is exhibiting extended volatility and I’m getting my usual phone calls, I guess traders have patterns just like the markets.
4. When I ask traders if they consider hedging their portfolio or swing trading the E-mini in addition to their trading strategy, I find that many traders are not familiar with the idea. Often times I wrongly assume that most people are aware of swing trading the E-mini or hedging the E-mini and how it can help them reduce risk and/or increase profit. 5. This article is going to be tailored towards beginners, so if you are a seasoned trader who is very familiar with swing trading or hedging using the E-mini contract, this will be a quick review. 6. The E-mini contracts came into existence in September of 1997, the first E-mini contract was the E-mini SP 500 futures contract. The contract is 1/5 the size of the large SP 500 Futures contract and trades completely electronically 23 hours per day. The E-mini became an instant hit and volume began drifting away from the large SP 500 futures contract and into the E-mini futures contract almost immediately. 7. Following the success of the E-mini SP contract; the exchange introduced a miniature version of the large Nasdaq 100 futures contract. You may have guessed it, the E-mini NASDAQ was the name given to the miniature version and it is also 1/5 the size of the large Nasdaq 100 futures contract. 8. Additional E-mini contracts started coming out with the E-Mini Dow Jones following the release of the E-mini NASDAQ futures contract. Many fund managers and professional traders abandoned the large contract and switched to trading the E-mini. 9.
Here are the specifications you need to know:
The E-mini SP Contract is valued at $50.00 * The value of the SP 500 Index. = Each point move equals $50.00 The E-mini Nasdaq Contract is valued at $20.00 * The value of the Nasdaq 100 Index = Each point move equals $20.00 The E-mini Dow Jones Contract is valued at $5.00 * The value of the Dow Jones Index = Each point move equals $5.00 10. There are two ways traders primarily trade the E-mini contracts. The first way is to hedge an existing portfolio of stocks. For example, let’s say you are currently holding $50,000 worth of stocks that are primarily made up of technology companies and you think the market is going to have a sell off. 11. To hedge your portfolio you would sell approximately $50,000 dollars worth of the E-mini Nasdaq Futures contract to offset the loss to your portfolio if the market drops. You would simply multiply the value of the index by $5.00 ($5.00 * 2700 = $13,500) and then divide that number into the
value of your stock portfolio which happens to be $50,000 ($50,000 / $13,500 = 3.7) so you would need roughly 3.7 or you could round it up a bit to 4 E-mini Nasdaq Futures contracts to hedge against a market decline. 12. The type of stocks that make up your portfolio would determine which E-mini contract you would need to sell. If your portfolio is primarily composed of blue chip stocks the E-mini Dow Jones would be your first choice. If on the other hand your portfolio is composed of a mix of stocks, then the E-mini SP Futures contract would be the obvious pick. Your stock portfolio is the primary determining factor in choosing the correct index to trade. 13. In addition to hedging, the E-mini’s have become tremendously popular markets for both swing traders and day traders alike, there are three major reasons for this increase in popularity. In addition to avoiding having to pay multiple commissions for individual stocks and having to monitor many different stocks at the same time, there are three major reasons for the growth and popularity of the E-mini contracts. 14. Contract Size – Before the small contracts began trading, the only other option was to trade the larger ones and they were just too big for most traders. Most traders just couldn’t afford the risk and the large leverage the big sized contracts needed. Imagine you just started trading and entered a large SP 500 contract. If you contract moved 3 points you would be out of $750 dollars, this was just too much risk for small traders. 15. Execution – Since the E-mini contracts are traded electronically, the execution is literally instantaneous, this makes it ideal for swing trading the E-mini and is very different then when trading the larger pit traded index futures contracts. Pit execution has not changed in over 100 years, each step from entering an order to filling the order to getting your fill back is done by people and mostly different people so it can take anywhere from 30 seconds to 2 minutes to get a fill on a market order. Can you imagine what type of movement the index can produce in that time period ? That’s the second reason why E-mini contracts are so much more popular than the larger counterparts. 16. Access – The E-mini contracts are available almost 24/7, what this means to you is you can enter and exit the market at any time day or night. The larger contracts are pit traded, this means you cannot enter or exit orders on the weekends and there are large breaks between the day pit session and the evening session. The spreads between the bid and offer are substantially wider because there is lack of liquidity when the large contract is not being traded in the pit. 17. These are the primary three reasons why the E-mini contract became and remains very popular to hedge or to speculate. In the coming weeks I will be doing several tutorials and trading strategies using these contracts. 18. That’s it for today’s video tutorial. Please visit our website www.marketgeeks.com for your free swing trading report and don’t forget to subscribe to our channel for swing trading videos and trading tips. If you have any questions, please don’t hesitate to contact me at RScott@marketgeeks.com, I hope each and every one of you has a wonderful day today. http://www.marketgeeks.com/swing-trading-the-e-mini/