Why Micro Futures Are A Game Changer for Retail Traders

At a Glance

  • Equity index traders hesitant to venture into futures should be encouraged by contracts one-tenth the size of the popular E-mini 

One thing holding many stock market speculators back from dipping their toe into the futures markets is the high levels of risk.

Those speculating in the stock market, particularly in ETFs such as the SPX, SPY, and QQQ now have a stepping stone into the advantages of the futures markets including around-the-clock market access,  favorable tax treatment, easier tax reporting, ease of shorting the market, and trading on margin without the burden of paying interest charges to a brokerage house.

CME Group has accurately pinpointed the need for smaller contracts aimed at more risk-averse speculators, or those with smaller accounts. Over the years they have released similar products in other markets (the mini grain futures and micro-currencies). I am a big fan of these products, but they weren’t necessarily game changers for the industry because they did little to curb the hesitation of traders to venture into unfamiliar territory. The Micro E-mini suite of stock index futures, on the other hand, do exactly that.

Manageable Size

Micros include contracts for the S&P 500, the NASDAQ-100, the Dow, and the Russell 2000. Each of these bite-sized contracts will be one-tenth the size of the traditional E-mini versions. This means instead of a trader making or losing $50 per point in the S&P or $20 per point in the NASDAQ, they will make or lose a more manageable $5 or $2 respectively; the Micro E-mini Dow will produce a 50 cent profit or loss per point and the Russell $5 per point.  Further, the tick value of each will be $1.25 for the Micro E-mini S&P 500 futures contract and $0.50 for the others.

The margin required to trade these products is estimated to be about $660 for the Micro E-mini S&P 500 and the micro-sized Dow, $836 for the Micro E-mini NASDAQ-100 futures contract, and less than $500 for the “petite” Russell 2000.

If you are wondering what the contract size is and the margin is, you are asking the right questions. As with any index future, the contract size is dependent on the index price. The value can be determined by multiplying the point value by the current price. Thus, if the S&P 500 is trading at 2,850 the Micro E-mini futures contract would represent $14,250 worth of an S&P 500 allocated portfolio of stocks ($5 x 2,850); similarly the notional value of a NASDAQ Micro E-mini futures contract would be $15,600 at a price of 7800 (7,800 x $2) and the Micro E-mini Dow futures contract would represent $13,000 worth of Dow Jones Industrial average stocks with the index valued at 26,000 (26,000 x $0.50)

Not Just For Large Accounts Anymore

The size and cost of these new products enable traders with low risk tolerance to more comfortably participate in futures.  Nevertheless, even trading Micro E-mini futures requires participants to educate themselves on the risk involved.

Trading futures is no longer reserved for those with either large trading accounts, high tolerance to risk, or both. With Micro E-mini stock index futures, those looking for efficient around the clock trading with mitigated risk exposure, will now find what they are looking for in the futures markets.

 

There is a substantial risk of loss in trading commodity futures, options, ETFs.  Seasonal tendencies are already priced into market values.

Carley Garner is an experienced commodity broker with DeCarleyTrading.com, a division of Zaner, in Las Vegas, Nevada. She is also the author of four books, the latest titles are “Higher Probability Commodity Trading” and “A Trader's First Book on Commodities. She also writes a monthly column for Stocks & Commodities Magazine. Garner specializes in various methods of commodity market analysis but is best known for her technical analysis contributions to Jim Cramer’s Mad Money.

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