What are futures? What are E-minis? Which ones to trade?

What are futures? 

In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today (the futures price or the strike price) with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "short". The terminology reflects the expectations of the parties -- the buyer hopes or expects that the asset price is going to increase, while the seller hopes or expects that it will decrease. Note that the contract itself costs nothing to enter; the buy/sell terminology is a linguistic convenience reflecting the position each party is taking (long or short).

In many cases, the underlying asset to a futures contract may not be traditional commodities at all – that is, for financial futures the underlying asset or item can be currencies, securities or financial instruments and intangible assets or referenced items such as stock indexes and interest rates.

What are E-mini futures?

An electronically traded futures contract on the Chicago Mercantile Exchange that represents a portion of the normal futures contracts. E-mini contracts are available on a wide range of indexes such as the Nasdaq 100, S&P 500, S&P MidCap 400 and Russell 2000.

Which E-minis do we trade?

Nasdaq: 4 ticks (0.25 is 1 tick). There are 4 ticks in 1 point, each tick is worth $5, so 1 point = $20

Micro-Euro/USD: .0001 is 1 tick, each tick in the micro-Euro/USD is worth $1.25.

The reason we trade the Nasdaq instead of the S&P500 is because the leverage is lower (you lose less money on losses) and the Nasdaq “trends” more than the S&P500. There are a lot of automated trading systems (algorithms) trading the S&P, so it ranges a lot more than the Nasdaq and there are more false breakouts and false signals in the S&P. The reason we trade the micro-Euro instead on the mini-Euro, which is $12.50 per tick, is because it gives us superior trade management. We are able to add contracts into the original position as it goes in our favor, and then reduce risk by adjusting our stop-loss to a positive amount. In theory, we can trade 10 micro contracts and it would be equivalent to trading 1 mini contract of the Euro. Having more than one contract allows us to manage the trade; we can stagger our profit targets, we can send out the first contract as a “probe” into the market and is we’re correct on the direction, we can add to the position. Trading 1 contract of the mini is riskier because we expose ourselves to high leverage and risk right from the beginning of the trade entry.