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CNBC Explains

What are the 'E-minis' behind the flash crash?

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A futures trader was charged by the CFTC on Tuesday with illegally manipulating the stock market during the May 2010 flash crash using E-mini S&P 500 futures contracts.

A futures contract is an agreement to buy or sell the value of an index at a future date. E-mini futures are a smaller version of a typical futures contract.

While this type of contract is available for many indexes, when traders say, "E-minis" they are most likely referring to those that track the S&P 500 Index.

The E-mini is one-fifth the size of the S&P 500's regular contract. So, instead of a $250 value, its size is just $50. It's tick size—the allowable value of price moves—is also one-fifth smaller than a regular futures contract.

This smaller size makes the contracts highly liquid and easy to trade. Their high daily volume has led them to be more widely followed than the regular S&P 500 contract. A move in the S&P 500 is often preceded by a move in the E-mini contracts.

This combination of factors is likely why they were allegedly used by a trader to manipulate the market. They are both influential and easy to trade.

On a typical day on the Chicago Mercantile Exchange, where the futures are traded, S&P 500 E-mini volume will be in the millions whereas the regular S&P 500 futures contract volume will be in the thousands.

The contracts, known for their symbol "ES," were created by the CME in 1997. The "E" stands for electronic.