Module 3A
Futures mechanics: derivatives, contracts and instruments
Leads into 3B, which turns the instrument into a position.
- Derivative
- An instrument whose value comes from an underlying asset. You trade the contract, not the asset.
- Futures contract
- A standardised agreement to buy or sell at a set price on a future date.
- ES vs MES
- ES is the standard S&P 500 contract at $50 a point. MES is one tenth the size at $5 a point.
- Tick
- The smallest price increment. Four ticks make one point in ES and MES.
- Front month
- The contract currently carrying the volume. The one you should have open.
- Margin
- The capital your broker requires to hold a contract.
What you are actually trading
A derivative is an instrument whose value is derived from an underlying asset. Futures are derivatives, so you are not buying the S&P 500. You are trading a contract that tracks its price.
A futures contract is a standardised agreement to buy or sell an asset at a predetermined price on a specified future date. For an intraday trader the contract is opened and closed within the same session, so the delivery mechanics never touch you.
That last point is true and it is also where self-taught traders get caught. Delivery never matters. Which contract you have open matters a great deal, and that is the next section.
The instruments
| Instrument | 1 point | 1 tick | Ticks per point |
|---|---|---|---|
| ES, E-mini S&P 500 | $50.00 | $12.50 | 4 |
| MES, Micro E-mini | $5.00 | $1.25 | 4 |
Why MES. It gives real market exposure at proportionally small dollar risk. One contract with a four-point stop is $20 of risk, which is enough to produce genuine psychological pressure without being financially threatening.
That combination is the entire point, and 1E already made the argument: a simulator removes the one variable that matters. As skill and consistency develop, size scales. The process does not change.
Contract rollover, and why charts lie about it
This is the section most free material skips, and it is the one that will actually cost you something.
Equity index futures trade on a quarterly cycle: March, June, September and December. Each contract has an expiry, and after it the contract still exists on your platform. It still loads. It still draws candles.
It just has almost no volume in it.
That is the trap, and it is specific. An expired or back-month contract does not throw an error. The chart looks normal. What has changed is that the volume, the delta and the order book you are reading belong to a contract nobody is trading any more. Every flow read in Phase 2 becomes meaningless and nothing on screen tells you.
The rule: always trade the front month. That is the contract currently carrying the volume, and the roll happens roughly a week before expiry, in the week of the third Friday of each contract month. Volume migrates from the expiring contract to the next one over a day or two.
How to check in five seconds: pull up both contracts and compare volume. The one with the volume in it is the one to trade. If your platform offers a continuous or front-month symbol, use it for charting and confirm the specific contract before you execute.
Contract months are written with a letter and a year. H is March, M is June, U is September, Z is December. So a June 2026 Micro E-mini is MESM6. If you see a symbol like that written in any material, including this curriculum, treat it as an example rather than an instruction. By the time you read it, it is probably expired.
Margin
Margin is the capital your broker requires you to hold a contract. It is not the cost of the trade and it is not your risk. Your risk is your stop, in points, multiplied by the point value, which is 1E's arithmetic and has nothing to do with margin.
MES requires far less margin than ES, which is part of why it is the instrument here. But margin requirements vary by broker, change with volatility, and are frequently raised without much warning. Confusing margin with risk is how people end up sized far larger than they intended, because a low margin requirement makes a large position look affordable.
Self-check
Grade yourself honestly
1. What is your risk on one MES contract with a four-point stop, and what does margin have to do with it?
A correct answer is $20, and nothing. Risk is stop distance times point value. Margin is what the broker requires to hold the position. If your answer connected the two, that is worth catching now, because it is the specific confusion that produces positions much larger than intended.
2. It is late November. You open your usual chart and the candles look normal but something is off. What do you check first?
A correct answer checks which contract you have open and compares volume against the next one. December is the front month by then. The tell in the question is the season, and the reason this is worth knowing is that nothing on screen will tell you. The chart loads perfectly.
3. Why is delivery irrelevant to you but the contract month is not?
A correct answer separates the two. You close intraday so you never take delivery, but the contract you have open determines whether the volume and order flow you are reading are real. One is about the trade, the other is about whether your data means anything.
4. A 10-point move. What is that worth on ES and on MES?
A correct answer is $500 and $50, produced without a calculator. If it took you a moment, do the arithmetic until it does not, because 1E already said everything after it assumes these numbers are automatic.
If question 2 caught you
That is exactly what it is for, and it is the most practically expensive thing in this module. Every flow read in Phase 2, delta, absorption, volume at the level, is computed from the contract you have open. Read a dead contract and all of it is noise that looks like signal. It happens most often to self-taught traders, precisely because nobody is there to mention the roll.
One rep before you continue
Find the front month yourself
Open your platform. Pull up the current Micro E-mini contract and the next one in the quarterly cycle, side by side.
Write down two things. Today's volume in each, and which one you would have traded if you had not checked.
That is the whole exercise and it takes two minutes. You are building one habit: confirming the instrument before confirming anything else. It will feel unnecessary right up until the week it is not.
What the next module does with this
3A gave you the instrument. 3B turns it into a position: long and short, why size here is fixed at one contract, and the translation from points to dollars that has to be instant before anything in Phase 3 works.
Log the module
Where did you get stuck?
Not a test, and nothing is marked. This module is mostly facts, so if something here was new it is worth me knowing which part. About a minute.