Micro E-Mini Futures

Posted by Tradovate on May 2, 2019 at 9:04 AM

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Finally,  a Micro E-mini product that is right-sized by the CME Group that will be 1/10th the size of the classic  E-mini futures contracts that are geared specifically for the retail trader. The new Micro E-mini will be for the four major indices, S&P 500, NASDAQ-100, Russel 200 and Dow Jones Industrial Average. There are so many reasons this makes sense and is long overdue; let's take a look at some of these reasons.

 

 

 

The classic E-mini futures as we know them today launched in September of 1997. At the time the benefit was two-fold, they traded electronically and were 1/5 the size of the standard S&P 500 contract. The combination of electronic trading and the reduced size propelled the E-mini futures contracts to become wildly successful by any standard. Fast forward over 20 years and on May 6, 2019, the CME Group will launch the Micro E-mini futures which will be 1/10th the size classic E-mini futures.

 

Why are these Micro E-mini important for the retail trader? The most apparent is the size. For example, as the S&P 500 price has continued to climb higher the underlying value of one classic E-mini S&P 500 contract (ES) is too large for a retail trader. As an example with a price of 2925, the ES notional value is $146,250 (2925 * $50 per point). This notional value is too significant for a retail trader. If today a trader wants to have a position in the ES, the smallest option they currently have is one contract which is too large of notional value for many traders. For years the futures exchanges have watched Exchange Traded Funds (ETFs) explode in popularity with equity traders. Part of the attraction of ETFs is the ability to scale in and out of trades with smaller positions. The new Micro E-mini (MES) will be $5 per point as compared to $50 per point. Using the same price of 2925 on the S&P 500, this creates a notional value of only $14,625 or 1/10 the size of the classic. This smaller contract size will now allow traders to scale in and out of positions like equity, ETF traders can.

 

Since the new Micro E-mini are smaller in terms of value per point and the notional value they also have lower capital requirements. The Micro E-mini will also be 1/10 of the margin. This lower margin will allow for smaller traders to participate. For example, at Tradovate to open a standard account the minimum account size is $2000. Now with the E-Mirco, a trader can open an account with as little as $250. This lower account minimum allows futures firms to attract equity, forex and CFD traders. The smaller capital requirement will also allow the trader to reduce leverage if they choose. As you increase leverage you increase the potential gain or loss relative to your account size. Enabling a trader to deleverage if they want is healthy for the trader and the industry and long overdue.

 

Other advantages are the Micro E-mini futures, like the classic, will trade Sunday 5 pm CST through Friday 4 pm CST, almost 24 hours a day. The continuous trading allows retail traders to engage with the market when they otherwise could not using a traditional ETF. While the contract sizes are less so too are the transactional costs as exchange fees, and commissions are adjusted lower to compensate for the smaller tick value.

 

At Tradovate we are excited about the launch of the Micro E-mini Futures and invite you to learn more.  

 

 

The official blog of Tradovate, exploring futures trading from issues to innovations.

 

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