To day trade e-minis or to day trade stocks?
Now, that is that question, isn't it? We believe we may have some good answer to it. In what follows, that is.
For those who may not know what e-minis are a brief introduction seems very much in order. We assume that no introduction to stocks is really necessary; they have been around for quite a while now and are pretty well-known to many people. Let us also make it clear right away that we mean e-mini futures, and not, for instance, forex e-minis. The latter can also come in micro sizes, but that's not so with e-mini futures. Well, that has actually chnaged recently, but e-mini micros are still not very popular.
The "mini" part of "e-mini" refers, of course, to the smaller size of these contracts. Smaller compared to their bigger and older "brothers," the full sized futures contracts that have been around for decades by now, having been traded on physical exchanges, such as Chicago Mercantile Exchange (CME) or Chicago Board of Trade (CBOT). The e-mini futures have been around since 1997 only when the first emini futures instrument, the S&P 500 emini futures, known by its ticker as ES, was launched.
They are relatively new then, but their volumes have already reached sizes that make trading them relatively smooth. The mini sizes of e-mini contracts are several times smaller than full sized contracts. For instance, the e-mini futures of S&P 500 is 5 times smaller than the full sized futures contract of S&P. The 1 point move in the latter is worth $250, in the former only $50, so you would need to use 5 e-mini contracts to achieve the same results as when trading the full contract.
The "e" part of the name stands for "electronic," meaning that these instruments can be traded entirely electronically, over the Internet, which certainly is quite appealing to small traders and ensures that virtually anyone with a stable Internet connection and a few thousands dollars can become an emini trader.
You can open a brokerage account with an e-mini broker relatively easily. Their numbers keep on growing and some of them don't require more than $2,500-3,000 in the initial deposit to let you embark on your trading career. Stock brokers may require even less, but to open a stock margin account that would allow you shorting stocks, you often need to deposit at least $2,000. Thus, the financial requirements seem to be nearly identical. Superficially, though.
There is one very crucial difference that makes day trading of e-minis the only choice for many traders. This has to do with limitations on the number of trades you can place in your stock account per day. It turns out that the current US federal regulations do not allow to place more than 3 trades a day in your stock account if your account balance is lower than $25,000. This limitation does not apply to day trading emini futures, and so no wonder that many small size traders do choose e-minis over stocks.
Some people may also argue in favor of day trading e-minis by pointing out that day trading them is also much more convenient than day trading stocks because you only need to focus on trading one emini instrument, such as the S&P emini futures or the Dow Jones e-mini futures, or one of the many other e-mini futures products currently available on the market. They contrast it with the need to follow many stocks. That's really not a very good argument. You can also focus on day trading one stock that has decent intraday volatility, at least of a few points, such as AAPL or GOOG, but to do it frequently enough to be able to make a living off of it, you would have to have at least 25 grand in your account, so the issue again boils down really to how much capital you can afford to spare to this end than anything else.