One of the most popular contracts in the futures market is the equity index futures. Although not as widely traded as the E-mini S&P 500 futures, the E-mini S&P MidCap 400 futures is one of the prominent E-mini equity index futures on the Chicago Mercantile Exchange electronic marketplace. They are one of the most widely traded equity futures contracts in the market, and they present an efficient and cost-effective way to gain market exposure to the S&P MidCap 400 Index.
The E-mini S&P MidCap 400 futures provides investment managers, financial institutions, corporations, and private investors with a way to get exposed to mid-size U.S. company stocks without having to buy the individual company stocks. Owing to the relatively small size of the contracts, many traders can afford to trade them.
|E-mini S&P MidCap 400 Contract Specifications|
$10 (0.1 index points)
$100 x S&P MidCap 400
March, June, September, December
Sunday-Friday 5:00p.m. - 4:00p.m. (Settles at 3:15p.m.) CST
Last Trading Day
The Friday of the contract month
What Is the S&P MidCap 400 Index?
More commonly known as the S&P 400, the S&P MidCap 400 Index is a stock market index for the mid-cap equity sector of the U.S. stock market. It is published and maintained by the S&P Dow Jones Indices LLC, but it was first launched on the 9th of June 1991 by Standard & Poor’s.
The index measures the performance of companies considered to be in the mid-range category of market capitalization — as against others considered to be “large-capitalization companies” (above $15 billion in market valuation) or “small-capitalization companies” (below $1 billion in market valuation). It consists of 400 companies that fall into the mid-range category of market capitalization.
The aggregate market cap of the S&P MidCap 400 Index accounts for about 7 percent of the total value of the U.S. stock market. As of April 2019, the median market cap of the stocks included in the index was $4.2 billion — with the market cap of the largest company in the index at about $13.7 billion and the smallest company at about $1.0 billion.
Being a market-capitalization-weighted index, the index gives more weight to companies with larger market valuation, so the larger-capitalized stocks have more influence on the index’s movement. The S&P MidCap 400 Index is considered a barometer for the U.S. mid-cap equities sector and is one of the leading indexes that investors use to gauge the market performance and direction of U.S. stocks.
What Are E-mini S&P MidCap 400 Futures?
E-minis are futures contracts that are a fraction of the value of standard futures. Futures contracts are financial derivative contracts that require the buyer to purchase — and the seller to sell — the underlying asset, such as a financial product or a physical commodity, at a predetermined future date and price.
These contracts normally specify the quality and quantity of the underlying asset. They are, therefore, highly standardized to facilitate trading on a futures exchange. Some futures contracts may be settled by physical delivery of the asset, but the E-minis are settled with cash.
The E-mini S&P MidCap 400 futures is an electronically traded equity index futures in which the underlying asset is the S&P MidCap 400 Index. It is a cash-settled contract that primarily trades on the CME’s Globex electronic trading platform. The ‘E’ in the E-mini stands for electronically traded. There are E-mini contracts for a wide range of other equity index futures, such as the S&P 500 Index, Nasdaq 100, and the Russell 2000.
Most small traders find the E-mini futures contracts easier to trade, as they require less trading capital. E-mini contracts also made futures trading more accessible since traders can trade from the comfort of their homes, anywhere in the world, and electronic trading is more efficient than the open outcry system.
The CME, in 2015, developed a different way of determining the official closing value of the underlying index, known as the Basis Trade at Index Close (BTIC). The BTIC enables market participants to trade the contracts at a basis to the official closing value of the index ahead of the actual cash market close. Later on, they launched the Trade at Cash Open (TACO), which allows a trader to execute a basis trade on E-mini S&P 500 futures relative to the day’s official cash index opening level, ahead of the market opening auction.
Why Trade E-mini S&P MidCap 400 Futures
There are many reasons for trading E-mini S&P MidCap 400 futures, and they include the following:
Speculation: The great majority of the traders in the equity index futures market trade solely for speculative reasons, and the E-mini S&P MidCap 400 futures has the right volatility that provides good speculation opportunities.
Hedging: Institutional investors and fund managers may use E-mini S&P MidCap 400 futures as a valuable risk management tool for their investments in the U.S. stock market. For example, an investor whose portfolio of stocks closely resembles the S&P MidCap 400 Index may use the E-mini S&P MidCap 400 futures to hedge his portfolio.
Portfolio diversification: Diversifying stock portfolio is what fund managers and institutional investors often do to reduce their risk exposure. The E-mini S&P MidCap 400 futures offer investors market exposure to mid-size U.S. company stocks without having to buy the individual company stocks, and they also represent an easy way to invest in an already diversified stock derivative product.
How Does the E-mini S&P MidCap 400 Futures Trade?
The E-mini S&P MidCap 400 futures are exchange-traded contracts, which are standardized. Trading is highly regulated to reduce the risk of default by any of the trading parties. As a matter of fact, buyers and sellers are not in direct contract with themselves, instead, each party is in contract with the clearinghouse of the exchange.
Exchanges where the contract trades
The E-mini S&P MidCap 400 E-mini futures are traded electronically on the Chicago Mercantile Exchange (CME) Group’s Globex electronic trading platform, so traders can access the market from wherever they are. The market is open from Sunday to Friday, from 6:00 p.m. to 5:00 p.m. Eastern Time (ET) the next day, with a trading halt between 4:15 p.m. to 4:30 p.m. each day. Fridays are the only exception, as the market closes by 5:00 p.m. ET to reopen by 6:00 p.m. on Sunday.
Margins and leverage
The margin is the minimum deposit required to carry a contract. It is of two versions: the initial margin and the maintenance margin. The initial margin is required at the time a contract is opened — it is the minimum amount a trader must have with the exchange to be able to open the contract. On the CME electronic platform, the initial margin for E-mini S&P MidCap 400 futures is in the range of 3.5-20 percent of the total value of the contract.
The maintenance margin is the least amount a trader’s equity must not fall below for the trader to keep carrying the contract. In other words, if the trade is making losses, the trader must not allow his account’s equity to fall below the stipulated minimum maintenance amount.
For the E-mini S&P MidCap 400 futures, the maintenance margin is $7,200. When the equity is getting to the maintenance value, the trader is asked to make additional deposits (often called variation margin or margin top-up) to keep his equity above the $7,200 level.
Leverage is the factor by which a trader’s capital can be multiplied to get the total worth of the contract (Leverage = total worth of contract/trader’s capital). Any financial product that trades on margin is a leveraged instrument.
Let’s say that the total worth of the E-mini S&P MidCap 400 futures is $206,100 ($100 x 2061.00), and the required margin is $7,200, the contract is leveraged by a factor of 28.63 ($206,100/$6,300 = 28.63). This means that a trader is able to carry the contract with about 3.5% of the contract’s total worth and can potentially make over 28 times as much profit or loss as he would have made when trading without any leverage.
A contract of CME’s E-mini S&P Midcap 400 futures (EMD) is equivalent to $100 multiplied by the prevailing value of the S&P MidCap 400 Index. The price quotation is in the U.S. dollar and cents. The minimum price fluctuation is as follows:
- Outright transactions —10 index points, which is equal to $10.00 per contract
- Calendar spread —05 index points, equivalent to $5.00 per contract
- All other spread combinations (BTIC and TACO) —05 index points, which is equal to $5.00 per contract
Contracts are listed for five months in the March Quarterly Cycle (March, June, September, and December). Traders are allowed to hold a limited position size at any point in time. According to the trading rule, a trader shall not carry more than 5,000 Standard S&P MidCap 400 Index contracts, or its equivalent, net long or net short in all contract months combined. For purposes of this rule, an E-Mini S&P MidCap 400 futures contract shall be deemed to be equivalent to one-fifth (0.20) of a Standard and Poor’s MidCap 400 Stock Price Index futures contract.
The last day of trading is the third Friday of the contract month, and on that day, trading terminates by 9:30 a.m. ET. For BTIC, trading terminates at 4:00 p.m. ET on the Thursday prior to the third Friday of the contract month.
Being a cash-settled contract, the final settlement of E-mini S&P MidCap 400 futures contract is done with cash in accordance with the relevant rules of the exchange. Traders who have open positions in the contract at the time of termination of trading shall make payment to or receive payment from the clearinghouse in accordance with normal variation performance bond procedures based on a settlement price equal to the final settlement price.
The E-mini S&P 500 futures contracts are marked to market, so at the end of every trading day, each trader’s profits or loss is credited or debited from his account. Any trader whose equity is falling below the maintenance margin is required to top up his account to be able to continue carrying the trade.
The settlement is done each day until the contract expires. At expiration, depending on whether the trade is in profit or loss, the trader shall pay or receive payment from the clearinghouse of the exchange.
How to start trading E-mini S&P MidCap 400 futures
If you want to start trading E-mini S&P 500 futures, you will need to create an account with the exchange through a futures broker and deposit the required margin. You don’t need to have the full dollar worth of the contract to start since it’s a leveraged instrument. However, be cautious about futures trading — it is easy to start making money with futures trading, but if care is not taken, you can also lose more than you invested.
E-mini S&P MidCap 400 Trading Strategies
Finding a trading strategy for the E-mini S&P 400 contract isn’t very hard, at least not compared to the difficulty of finding trading strategies for other markets, like currency futures, just to name one example.
However, one valuable tip is to expect a lot of slippage with this market. Usually, we assume slippage to be around $50 round turn, which is a quite high but realistic number. As such, you should make sure that your strategy has a quite high average trade to cover transactional costs.
If you’re interested in getting edges for a variety of markets, we recommend that you have a look at our edge membership. As a member, you’ll get new edges delivered right to your inbox every month!
S&P MidCap 400 Seasonality
Here follows a seasonal chart of the market:
The Factors that Affect E-mini S&P MidCap 400 Futures
There are many factors that directly or indirectly affect the S&P 500 Index, which invariably influences the pricing of the S&P 500 E-mini futures. These are some of the major ones:
Movement of the component stocks: The S&P MidCap Index is calculated from the market value of 400 medium-capitalized stocks, and companies with larger market valuation are weighted higher. So, changes in the prices of the largely weighted component stocks can significantly affect the value of the index. Since the E-mini S&P MidCap futures are derived from the index, price movements of the component stocks affect the pricing of the futures contract.
Trade wars: Trade policies, especially protectionist trade policies, do affect the stock market. Whenever there is any indication of trade wars, stock prices tend to be more volatile, and the index futures are affected.
Political events: Geopolitical events, such as wars, elections, and referendums, can have huge effects on stock prices and the stock index.
Fed’s interest rate changes: Anytime there are changes in interest rates, stock prices are affected and so does the index.
Value of the U.S. dollars: A falling USD drives up stock prices, causing the stock index to climb up. Conversely, a rising USD tends to cause a decline in stock prices.
The E-mini S&P MidCap 400 futures offer investors, fund managers, and corporations a way to hedge their exposure in the U.S. stock market. They also provide traders an opportunity to speculate on the direction of the stock market. The contract is traded electronically on the CME Globex platform.