For the novice trader, risking thousands of dollars on a single futures or Forex trade may be more than the trader can afford to risk. The "mini" type of trading accounts or contracts allow an individual trader to get in the game with a lot less money at risk. E-mini contracts and mini Forex accounts operate in different markets. Which is best depends on the trader's preference and size of her trading account.
E-mini contracts are smaller sized futures contracts from the commodity and futures exchanges. There are e-mini futures for most of the popular financial and commodity futures, such as the e-mini S&P 500, e-mini crude oil and e-mini Silver. E-mini contracts only trade over futures electronic trading systems as opposed to both floor and electronic trading for standard contracts. The e-mini futures contracts also represent a smaller amount of the underlying instrument or commodity. For example, an e-mini Silver contract is for the delivery of 1,000 ounces of silver. The standard silver futures contract is for 5,000 ounces. You trade e-mini futures through a registered commodity futures broker.
Mini Forex Account
Foreign currency exchange -- Forex -- is traded through independent brokers. The standard Forex lot is 100,000 of the base currency in a traded currency pair. If you trade euros against dollars -- EUR:USD -- one lot is worth 100,000 euros or $125,000 at $1.25 to the euro. In a mini Forex account, the lot size is 10,000 currency units. With a mini account, the required margin deposit and the amount of money a trader needs to trade is one-tenth the money of a standard Forex trading account.
Costs to Trade
To trade either e-mini futures or Forex mini lots requires a trader to put up a margin deposit for each contract or lot traded. E-mini futures margin rates are set by the commodity exchanges. To trade the popular e-mini S&P 500 requires an initial margin deposit of about $4,500 and an ongoing margin coverage of $3,500 per contract. Some brokers allow margin deposits as low as $500 to day-trade -- no overnight positions -- the e-mini contracts. The Forex trading rules allow 50:1 leverage, so the margin amount is 1/50th of the contract size. If the base currency is U.S. dollars, a Forex mini lot requires a margin amount of $200. In both e-mini and Forex mini trading it is possible to lose more than the initial margin amount, so a trader should have on deposit enough money to cover the margin for trades and some cushion.
Forex Both Ways
The e-mini futures products primarily trade against products that are not currency exchange trading. For Forex trading, the commodity exchanges offer e-micro contracts, which are similar in size to a mini Forex lot size. E-micro Forex futures are exchange-traded products, while mini Forex trading is accomplished over the counter through a broker. With mini Forex trading it is easy to change from currency pair to currency pair. With the e-micro futures contracts, each currency pair will be sized a little differently. The margin deposits required for e-micro futures contracts are in the $400 to $500 range, about twice the margin require for mini Forex trading.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.