E-minis are futures contracts that represent a fraction of the value of standard futures. They are traded primarily on the Chicago Mercantile Exchange . As of April, 2011, CME lists 44 unique E-mini contracts, of which approximately 10 have average daily trading volumes of over 1,000 contracts.
14-436: Some E-mini contracts provide trading advantages, including high liquidity (and therefore tight spread ), greater affordability for individual investors due to lower margin requirements than the full-size contracts, and round-the-clock trading 23.25 hours a day from Sunday afternoon to Friday afternoon. Under U.S. tax law, E-minis may qualify as 1256 Contracts , and benefit from several tax advantages as well. The risk of loss
28-667: A loss to traders that are more informed, as well as a cost of immediacy, that is, a cost for having a trade being executed by an intermediary. The realized spread isolates the cost of immediacy, also known as the "real cost". This spread is defined as: Realized Spread k = 2 × | Midpoint k + 1 − Traded Price k | Midpoint k × 100 {\displaystyle {\text{Realized Spread}}_{k}=2\times {\frac {|{\hbox{Midpoint}}_{k+1}-{\hbox{Traded Price}}_{k}|}{{\hbox{Midpoint}}_{k}}}\times 100} where
42-553: Is 1.5763, this means that currently you can sell the EUR/USD at 1.5760 and buy at 1.5763. The difference between those prices (3 pips ) is the spread. If the USD/JPY currency pair is currently trading at 101.89/101.92, that is another way of saying that the bid for the USD/JPY is 101.89 and the offer is 101.92. This means that currently, holders of USD can sell US$ 1 for 101.89 JPY and investors who wish to buy dollars can do so at
56-581: Is also amplified by the higher leverage. Most E-mini futures expire quarterly (with the exception of agricultural products), in March, June, September, and December. An E-mini future symbol is formed by starting with the root symbol and adding the expiration month letter (the same as for futures ) and the last digit of the expiration year. For example, the E-mini S&;P 500 expiring in December 2012 has
70-399: Is an accepted measure of liquidity costs in exchange traded securities and commodities. On any standardized exchange, two elements comprise almost all of the transaction cost —brokerage fees and bid–ask spreads. Under competitive conditions, the bid–ask spread measures the cost of making transactions without delay. The difference in price paid by an urgent buyer and received by an urgent seller
84-431: Is more difficult to measure than the quoted spread, since one needs to match trades with quotes and account for reporting delays (at least pre-electronic trading). Moreover, this definition embeds the assumption that trades above the midpoint are buys and trades below the midpoint are sales. Quoted and effective spreads represent costs incurred by traders. This cost includes both a cost of asymmetric information, that is,
98-439: Is the liquidity cost. Since brokerage commissions do not vary with the time taken to complete a transaction, differences in bid–ask spread indicate differences in the liquidity cost. The simplest type of bid-ask spread is the quoted spread. This spread is taken directly from quotes, that is, posted prices. Using quotes, this spread is the difference between the lowest asking price (the lowest price at which someone will sell) and
112-404: The transaction cost . If the spread is 0 then it is a frictionless asset . The trader initiating the transaction is said to demand liquidity , and the other party ( counterparty ) to the transaction supplies liquidity. Liquidity demanders place market orders and liquidity suppliers place limit orders . For a round trip (a purchase and sale together) the liquidity demander pays the spread and
126-402: The case of a market maker ) is the difference between the prices quoted (either by a single market maker or in a limit order book ) for an immediate sale ( ask ) and an immediate purchase ( bid ) for stocks , futures contracts , options , or currency pairs in some auction scenario. The size of the bid–ask spread in a security is one measure of the liquidity of the market and of the size of
140-468: The highest bid price (the highest price at which someone will buy). This spread is often expressed as a percent of the midpoint, that is, the average between the lowest ask and highest bid: Quoted Spread = ask − bid midpoint × 100 {\displaystyle {\text{Quoted Spread}}={\frac {{\hbox{ask}}-{\hbox{bid}}}{\hbox{midpoint}}}\times 100} . Quoted spreads often over-state
154-685: The liquidity supplier earns the spread. All limit orders outstanding at a given time (i.e. limit orders that have not been executed) are together called the Limit Order Book. In some markets such as NASDAQ , dealers supply liquidity. However, on most exchanges, such as the Australian Securities Exchange , there are no designated liquidity suppliers, and liquidity is supplied by other traders. On these exchanges, and even on NASDAQ, institutions and individuals can supply liquidity by placing limit orders. The bid–ask spread
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#1732801796476168-604: The spreads finally paid by traders, due to "price improvement", that is, a dealer offering a better price than the quotes, also known as "trading inside the spread". Effective spreads account for this issue by using trade prices, and are typically defined as: Effective Spread = 2 × | Trade Price − Midpoint | Midpoint × 100 {\displaystyle {\text{Effective Spread}}=2\times {\frac {|{\hbox{Trade Price}}-{\hbox{Midpoint}}|}{\hbox{Midpoint}}}\times 100} . The effective spread
182-407: The subscript k represents the kth trade. The intuition for why this spread measures the cost of immediacy is that, after each trade, the dealer adjusts quotes to reflect the information in the trade (and inventory effects). Inner price moves are moves of the bid-ask price where the spread has been deducted. If the current bid price for the EUR/USD currency pair is 1.5760 and the current offer price
196-559: The symbol ESZ2. The table below lists some of the more popular E-mini contracts, with the initial and maintenance margins required by CME. Note that individual brokers may require different margin amounts (also called performance bonds ). Options on E-minis exist for the E-mini S&;P 500 and the E-mini NASDAQ-100. Bid%E2%80%93offer spread The bid–ask spread (also bid–offer or bid/ask and buy/sell in
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