Leverage of S&P500 E-Mini Futures compared to ETF’s

The S&P500 Index represents the 500 largest companies listed on the US stock exchange (by market capitalization). There are both E-Mini Future products and ETF’s available for the S&P500 Index.

In contrast to ETFs, E-Mini futures (like all other futures) are not owned by the investor. The investor only participates in the profits and losses of the E-Mini futures through a contract.
I.e. not the full value of the underlying is deposited, but only a margin to cover possible losses.


There is a difference between initial margin and maintenance margin. The initial margin must be present in the account to start the trade. The maintenance margin is about 0.5% lower at Interactive Brokers (IAB) and must be present during the entire trade.
Both margin types are reduced at regular trading hours. However, for this article we are only interested in the so-called overnight margin, which is charged when the trade is held overnight.

If the market situation is calm, the initial margin to be deposited with IAB is approx. 5-7%. This results in the leverage effect!


Let’s assume that the S&P500 index has a value of 5000 points. Let’s further assume that, for simplicity, the future and the ETF on the underlying index have the same point value of $1. In reality, the E-Mini has a point value of $50 and the Micro E-Mini has a value of $5.

If you want to buy one piece of ETF at this level you would need to invest the following amount of money:

Price 5000 * Pointvalue $1 = $5.000

Price 5000 / $5.000 = Leverage 1

This means that the classic ETF therefore has no leverage.

If you were to reach for the future, you could purchase this one contract for the following amount of money

Price 5000 * 7% Margin = $350

Price 5000 / $350 = ~ Leverage 14

Drawdown consideration

With only $350 in your trading account, why would you still not execute the trade if you want to hold the position for more than one day?

As described under the heading Margin, we have only about 0.5% buffer between the initial margin and the maintenance margin. However, the negative volatility is much higher for the S&P500.

If in the above example the price falls by more than 0.5% overnight, your margin would no longer be covered and your broker would have to liquidate the position.

Since the price fluctuates, one must consider the acceptable negative fluctuation range within a trade for the trading strategy. The maximum trade drawdown of a strategy indicates the maximum number of points by which a trade has fallen in the past. For the AVALON trading strategy this value is 10%.

So it must be ensured that even after the maximum trade drawdown decreases, the margin of 5-7% is still available.
You can find the maximum trade drawdowns under the name “Absolute drawdown single trade” in the backtester results under details.

For the following example, we set the initial margin value to the higher value of 7%.

On the drawdown of 10% we also give 1% buffer and set it at 11%:

Price 5000 * (7% Margin + 11% Drawdown) = $900

Price 5000 / $900 = ~ Leverage 5,5

As you can see, with the AVALON strategy we can buy 5.5 times as many pieces (contracts) with a future as we could with an ETF.

In addition, we find that the leverage in futures depends on both the margin to be deposited and the drawdown of the strategy.

Let’s assume you are long and the price of the S&P500 rises by 100 points.

With the ETF, their profit would be:

1 Piece * 100 Points = $100

On the Future with the AVALON strategy the profit would be:

5,5 Contracts * 100 Points = $550

If the quote drops 100 points you would have a loss of $100 on the ETF and $550 on the future.

So you can see not only tprofits but also the losses can be larger with futures.

How can you take advantage of leverage in a strategy?

As we have seen from the above example, the advantage of using futures means that more contracts can be purchased than with ETF’s.

This means significantly more profits for successful trades. More losses for unsuccessful trades.

Importance of the strategy for leverage

A strategy is desired which produces significantly fewer losing trades than winning trades.

The trading strategy must highly exploit the return opportunities of long-lasting trends.

The strategy should also be able to profit from falling prices.

The strategy must calculate the correct number of contracts based on margin requirements and drawdown in order to make the best use of leverage and minimize risk.

Reinvesting leveraged gains

Reinvestment allows exponential growth of profits (compound interest effect).

Wenn Sie Ihre Gewinne einsetzen, um Ihre gehebelte Positionsgröße stetig zu erhöhen, können Sie das Wachstum Ihres Vermögens enorm beschleunigen.


ETF Advantages:
Since the ETF has no margin requirements, drawdown is not a factor. Total loss very unlikely.

ETF Disadvantages:
The classic EFT has no leverage. Thus, asset accumulation takes a long time.

Future Advantages:

Due to the leverage effect of futures, more contracts can be purchased as compared to ETF’s.
Profits as well as losses are amplified by leverage. With the right strategy like AVALON, the benefits of leverage can lead to exponential and thus greatly accelerated asset growth by reinvesting profits.

Future Disadvantages:
Margin and drawdown must be kept in mind or taken from a trading system like AVALON. Total loss possible.