| About the
E-mini's
This year a trillion dollars
worth of stock index futures will trade hands. The electronically traded
mini versions of the S&P 500 and other E-mini futures have opened up
this arena to the small speculator. Traders buy and sell over 500,000 E-mini
S&P 500 index futures contracts on a typical trading day. The
Chicago Mercantile
Exchange (CME) touts the E-mini S&P as the fastest
growing product in the CME's history.
Introduced in 1997 and 1999,
respectively, the E-mini S&P 500 (ES) and E-mini NASDAQ 100 (NQ) are 1/5th the
size of their full-size counterparts. One full point is worth $50 (US)
for the E-mini S&P and $20 for the E-mini NASDAQ. The minimum
margin requirements for day trading these products are often as low as $1000 per
contract. At recent prices, this implies leverage of more than
50 to 1 for the ES and more than 30 to 1 for the NQ!
Other E-mini futures include the E-mini Russell 2000 (ER2),
introduced in October 2001, and the E-mini S&P MidCap 400 (EMD), introduced in
January 2002. The mini Dow (YM), traded at the Chicago Board of Trade (CBoT) --
now part of the CME, was launched in April 2000. How do the
E-mini's compare
to popular equity products, like the QQQQ's (NASDAQ 100 tracking stock)? Even if
you trade on margin, you have to pay for the
leverage by borrowing money on margin and paying margin interest rates.
With the E-mini's the leverage is built-in. It costs you nothing.
And with a single, electronic
marketplace, the E-mini's are simple to trade. No level II's or ECN's to
worry about. And the E-mini's have good liquidity, so you can expect good
fills with little slippage.
What about taxes? With futures,
you don't have to report each trade on your US tax return. You get a summary
statement from your broker at the end of the year listing your net profit
for the year. In the US, 60% of that profit is taxed at long-term rates;
40% at short-term rates. It's as simple as that. Moreover, if you trade
an active approach, like the Reliability system, your trading may qualify
as a business, which would allow you to fully deduct your business expenses
(no more exclusion up to 2% of your adjusted gross income).
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