S&P futures contracts are based on the S&P 500 stock index and traded on the Chicago Mercantile Exchange (CME).The S&P 500 index is a market valued weighted index of 500 large capitalized stocks traded on the New York Stock Exchange (NYSE), Nasdaq National Market Executive System (NASDAQ) and American Stock Exchange (AMEX). S&P Futures are the most popularly traded stock index futures contract.
The S&P index introduced in 1957 is currently the investment industrys standard for measuring portfolio performance. 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.
In the beginning, the original S&P 500 futures contracts were valued at $500 times the index. The index more than doubled in three years as the stock market began to surge higher. The value of the S&P futures contract neared $500,000 and a 10 point change was worth $5,000 with the index approaching the 1000 level.
The margin requirements for that sized contract ruled many traders out of the market. So in 1997, CME introduced an S&P futures contract that was worth $250 times the value of the index. A move of a full point is now worth $250. Suppose the S&P 500 index value is at 1450, the value of the S&P futures contract will be ($250) (1450) = $362,500.
Similarly another mini S&P futures contract worth only $50 times the S&P 500 index was introduced by CME in 1997. The value of this new E-mini S&P futures contract brought the initial margin requirements down to around $4,000.
With the S&P futures $250,000 contract, the rising stock market put the initial margin at $15,000. This was keeping the S&P futures contract out of the reach of many individual speculators even with a margin requirement of only about 6 percent of the contracts value. By introducing the E-mini CME put the S&P 500 Index within the capabilities of many individual accounts. E-mini S&P futures contract in fact revolutionized trading. Today many individual traders make a living by day trading E-mini S&P futures.
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. This was the real innovation that allowed small orders of this new E-mini market trade entirely on an electronic platform and not in the traditional open-outcry pits.
Electronic trading would no longer be limited to after-hours trading or to supplement the primary pit contract, but it became the mainstream market for the E-mini contracts as the allowable number of contracts was increased over time.
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.
The S&P index introduced in 1957 is currently the investment industrys standard for measuring portfolio performance. 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.
In the beginning, the original S&P 500 futures contracts were valued at $500 times the index. The index more than doubled in three years as the stock market began to surge higher. The value of the S&P futures contract neared $500,000 and a 10 point change was worth $5,000 with the index approaching the 1000 level.
The margin requirements for that sized contract ruled many traders out of the market. So in 1997, CME introduced an S&P futures contract that was worth $250 times the value of the index. A move of a full point is now worth $250. Suppose the S&P 500 index value is at 1450, the value of the S&P futures contract will be ($250) (1450) = $362,500.
Similarly another mini S&P futures contract worth only $50 times the S&P 500 index was introduced by CME in 1997. The value of this new E-mini S&P futures contract brought the initial margin requirements down to around $4,000.
With the S&P futures $250,000 contract, the rising stock market put the initial margin at $15,000. This was keeping the S&P futures contract out of the reach of many individual speculators even with a margin requirement of only about 6 percent of the contracts value. By introducing the E-mini CME put the S&P 500 Index within the capabilities of many individual accounts. E-mini S&P futures contract in fact revolutionized trading. Today many individual traders make a living by day trading E-mini S&P futures.
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. This was the real innovation that allowed small orders of this new E-mini market trade entirely on an electronic platform and not in the traditional open-outcry pits.
Electronic trading would no longer be limited to after-hours trading or to supplement the primary pit contract, but it became the mainstream market for the E-mini contracts as the allowable number of contracts was increased over time.
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.
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading futures and currencies. Trade S&P Futures and Dow Futures!
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