What exactly is e-mini day trading?

E-mini futures are smaller-sized contracts of "full" futures contracts. While the latter have been around for a few decades, the e-mini products are relative newcomers to the trading scene, having been around for about 10-15 years only. Moreover, unlike their older "siblings" that have been traded on physical exchanges, e-minis have always been traded only electronically. That's what the "e" in their name stands for, namely "electronic.

It's because of the digital nature of buying and selling them that they have become so popular among retail traders. They allow even the smallest of traders with plain access to the Internet to compete against institutional traders from the comfort of their homes or home based offices.

The most popular such contracts include ES, YM, and TF (formerly ER2), that is, the e-mini contracts of S&P 500 futures, the Dow futures, and the Russell 2000 futures. In other words, these are e-minis of stock index futures.

Scores of e-mini traders trade these highly popular trading vehicles every day, sometimes several times a day. Day trading e-mini futures does not require you to have a large capital to risk. Some e-mini brokers can open an account for you with only $3,000 if not even a bit less, so no wonder that many try their luck at this game that can be quite lucrative to those who have mastered it well.

But what exactly is day trading?

Some people may think that this is self-explanatory, but this may not necessarily be so. If you think that day trading means trading every day, then this is really not the thing. Even though, it is true that many daytraders take more than one trade virtually every day if not every day, day trading really means a form of trading that assumes that you close your position the same day you opened it, that is, by the end of the daily trading session, which spans approximately the same period as the regular stock trading session. In other words, day traders want to be out of their positions by four oclock PM EST, or more precisely by 4:15 EST as that's the end of the daily trading session of most electronically traded US stock index futures.

There are some good reasons why you would like to be out of your position by then. First of all, once the overnight session starts, which happens shortly after the close of the daily session, the overnight e-mini margins kick in. Since they can be several times bigger than those allowed for day trading, what this means is that if your account is small, you may even be unable to hold your position overnight and so you are simply forced to close it. Second of all, holding your position overnight is a more risky proposition than holding it during a day as it remains exposed to worldwide events, often unpredictable and turbulent that are likely to produce wild fluctuations in futures markets. And who would really want to lose their sleep over that? Certainly, not so many.

So while it is true that many day traders trade several times a day, daytrading is hardly about frequent trading. It is simply about closing your position before the end of daily trading session. That's how day trading differs from other forms of trading such as swing trading where you keep your position open for a few days to a few weeks and from position trading where you keep your position open for months or even years.