E-mini Beginner Questions

C

caplan8293

Hi All,

After reading all the info on the CME, I still have a few questions. Any responses are appreciated.

1. If I were trading something like sugar, my understanding is that when the contract expires, there is a physical exchange of sugar and money. How does this work with index futures, where there doesn't seem to be any physical commodity?

2. Can someone explain how expiration dates work? Should I have closed all positions before that day, or can I still have some positions during that day? I assume that I would not want to have any sort of position when the contract expires, is that correct?

3. These questions seem kind of rudimentary, but I have not been able to find a decent book or website that explains index futures plain and simple. Can someone point me in the right direction? I checked out the CME but there was only introductory stuff there... Thanks for your help.
 
Quote from caplan8293:

Hi All,

After reading all the info on the CME, I still have a few questions. Any responses are appreciated.

1. If I were trading something like sugar, my understanding is that when the contract expires, there is a physical exchange of sugar and money. How does this work with index futures, where there doesn't seem to be any physical commodity?

2. Can someone explain how expiration dates work? Should I have closed all positions before that day, or can I still have some positions during that day? I assume that I would not want to have any sort of position when the contract expires, is that correct?

3. These questions seem kind of rudimentary, but I have not been able to find a decent book or website that explains index futures plain and simple. Can someone point me in the right direction? I checked out the CME but there was only introductory stuff there... Thanks for your help.
More...

caplan,

Welcome to the crazy world of index trading :)

About a week before the index futures expire, people start trading futures with the next expiration. So naturally you would do that. Volume in the current month futures will dry up and bid/ask spread will increase. If you hold to your expiring futures position, your broker will close your position before the expiration. Ask your broker about their rules.
 
Quote from caplan8293:

Hi All,

After reading all the info on the CME, I still have a few questions. Any responses are appreciated.

1. If I were trading something like sugar, my understanding is that when the contract expires, there is a physical exchange of sugar and money. How does this work with index futures, where there doesn't seem to be any physical commodity?

2. Can someone explain how expiration dates work? Should I have closed all positions before that day, or can I still have some positions during that day? I assume that I would not want to have any sort of position when the contract expires, is that correct?

3. These questions seem kind of rudimentary, but I have not been able to find a decent book or website that explains index futures plain and simple. Can someone point me in the right direction? I checked out the CME but there was only introductory stuff there... Thanks for your help.
More...

1. Cash settlement. You owe or are owed the difference between your entry and the settlement price on the last day of trading of the contract.

2. Exipiration for indexes are the third Friday of the contract month (March, June, September, and December). On the second Thursday before the third Friday the pits rotate contracts (pit rotation). At this time the current contract moves to a smaller pit for trading and the next contract moves into the larger pit. Since Emini's are tied to the pit, brokers usually stop allowing clients to initiate trades in the current contract (but you can usually offset your position up to the day of expiration).
 
Quote from acrary:

1. Cash settlement. You owe or are owed the difference between your entry and the settlement price on the last day of trading of the contract.

2. expiration for indexes are the third Friday of the contract month (March, June, September, and December). On the second Thursday before the third Friday the pits rotate contracts (pit rotation). At this time the current contract moves to a smaller pit for trading and the next contract moves into the larger pit. Since Emini's are tied to the pit, brokers usually stop allowing clients to initiate trades in the current contract (but you can usually offset your position up to the day of expiration).
More...

Great info.

I would also add that normally your broker will roll over the E-mini on Globex atleast one week prior to contract expiration so you may want to look into this.

Also, unless you want to take physical delivery you need to offset your positions prior to expiration.

First notice day = all longs must exit positions
Last notice day = all shorts must exit positions

Normally the clearing firm/broker / exchange will not allow you to take physical delivery unless you were listed as a bonified hedger. This helps to keep the books clean at the exchange and you will also have to pay interest and storage and delivery fees and and cash settlement equivalent to the amount of contracts size held i.e. 1 soybean contract = 5,000 bushels delivered to your front door.

go to the exchange for further rules on taking physical delivery if that is what you want. If not then don't even worry about it.

just offset your positions at the appropriate time and you will have nothing to worry about. Chances are you will be stopped out and/or put on margin call , and have the position automatically offset for you if you don't meet margin call........waaaayyyyy before that happens.:D


Good Luck

T-REX
 
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