Trade S&P Futures and Dow Futures.S&P Futures are the most popularly traded stock index futures contract. S&P futures contracts are traded on the Chicago Mercantile Exchange (CME). The S&P 500 stock index is a market valued weighted index of 500 large capitalized stocks traded on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX) and Nasdaq National Market Executive System (NASDAQ).Learn swing trading.
The S&P 500 is made up of 400 industrial companies, 40 financial companies, 40 utilities and 20 transportation companies offering a fairly diversified view of the US economy. The S&P index introduced in 1957 is currently the investment industry’s standard for measuring portfolio performance.
The original S&P 500 futures contracts were valued at $500 times the index in the beginning. As the stock market began to surge higher in those days, the index more than doubled in three years. The value of the S&P futures contract neared $500,000. A 10 point change on the S&P 500 index was worth $5,000 with the index approaching the 1000 level.
Margin requirements for the S&P futures contract trading were very high. Many traders were ruled out of the futures market with the margin requirements for that sized contract. CME introduced an S&P futures contract that was worth $250 times the value of the index in 1997. The value of the contract was halved in order to make the S&P futures contract more accessible to traders. Now, a move of a full point is worth $250 only. Suppose the S&P 500 index value is at 1350. The value of the S&P futures contract will be ($250) (1350) = $337,500.
Earlier in that same year CME introduced another mini S&P futures contract. This news mini contract became highly popular with individual traders instantly and was a hit with the investing public. E-mini S&P futures contract is worth only $50 times the S&P 500 index and the value of this new E-mini S&P futures contract brought the initial margin requirements down to around $4,000 at that time.
Even with a margin requirement of only about 6 percent of the contract’s value, the rising stock market put the initial margin at $15,000 with this $250,000 contract, keeping the S&P futures contract out of the reach of many individual speculators. The E-mini put the S&P 500 Index within the capabilities of many individual accounts.
But the real innovation was letting small orders of this new E-mini market trade entirely on an electronic platform and not in the traditional open-outcry pits. CME officials decided that trading orders could take place entirely on a trade matching computer with no human intervention, giving traders direct access to the market without going through an order handler.
E-mini S&P futures contracts would no longer be limited to after-hours trading or to supplement the primary pit contract. As the allowable number of contracts was increased over time, electronic trading became the mainstream market for the E-mini S&P futures contracts.
And, as long as trading was all computer-based, the CME also decided it might as well keep the market open almost 24 hours a day. The radical move caught the wave of online trading and day trading that was revolutionizing the stock market at the same time.
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