How to Trade S&P 500 Futures
For traders looking to have diversified participation in the equities markets, futures contracts on the S&P 500 index1 present excellent opportunities. Specifically, the E-mini contract is a good place to start.
Here’s what it takes to begin trading S&P futures.
Here’s a basic overview of how to get started
Develop and Test a Strategy for Trading S&P Futures
Before you get started, you’ll want to decide on a personal trading strategy. To establish this, you can start following trends, interpreting candlestick patterns, or identifying breakthroughs of resistance and support levels. Whatever it is, your strategy should include a set of rules with clearly outlined steps.
Having a defined strategy, preferably written down, will allow you to focus on analyzing market data rather than being swayed by hunches.
Fortunately, you can try out your trading strategies before putting real money on the table.
Start out by setting up a simulated trading account with TradeStation in order to test out your strategy on live market data. You can do this to gauge if your winning trades outnumber losing trades. If your trading strategy isn’t going according to plan, make adjustments and continue trials. This process will help you learn how to trade S&P 500 futures.
Another option is to use TradeStation’s back-testing analysis to try out your strategies using historical data. You can use the results from back-testing to tweak your strategy and then switch to live testing on paper.
How to Trade S&P E-Mini Futures
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Margin Requirements and Risk Management
The CME sets the initial margin requirements for futures contracts and can change them from time to time based on volatility and other factors. The initial margin for E-minis ranges from 5% to 7% of the contract’s notional value. The maintenance margin runs about 10% less than the initial required margin, and margins for day trading are around 25% of the initial margin.
Be aware that if your account value drops below the maintenance margin level, you will need to bring your account value back up to the initial margin required.
One risk with E-mini contracts is that in the event of a sudden market downturn, you could lose all of your margin deposit or even more. One solution you might consider is using stop-orders to protect your positions and limit your losses.
To do this, decide how much you’re willing to risk on each trade. Suppose, for example, you have $20,000 in your account, and you’re willing to risk losing 1% per trade. That would mean your maximum loss would be $200. If you bought 4 contracts at 4,300, you would want to set a stop-order at 4,299. In this case, a one-point downtick would give you a loss of $50 per contract, or a $200 total loss.
This is just an example, but the idea is to plan ahead and protect your account from unexpected and excessive losses.
TradeStation offers a variety of tools and products for futures trading, including trading ES futures.
Download TradeStation’s ebook, Futures Trading Demystified: Your Futures Questions Answered, to learn the ins and outs of futures trading.
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In Futures Trading Demystified, get answers to the most commonly asked futures questions. Get your free guide to learn:
- How futures trading works
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Sources
- CME Group. “Trading the S&P 500“
- CME Group. “E-mini S&P 500“
- CME Group. “E-mini S&P 500-Contract“
Important Information: This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: www.tradestation.com/important-information.
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