CME Micro E-mini Equity Index Futures Seen As Retail-Friendly Offering; Bitcoin Futures Update

CME Group recently launched a set of Micro E-mini equity index futures, offering smaller retail investors a chance to diversify into futures trading.
5 min read
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Key Takeaways

  • CME Group Micro E-mini equity futures see strong volume in first few months

  • Smaller contracts might be more accessible to beginner futures traders
  • Product could offer investors a way to diversify into futures
  • TD Ameritrade is offering clients a new way to trade Bitcoin futures

In the quest for a “home run” investing or trading strategy, there sometimes can be value in playing “small ball.” That’s one early-innings takeaway from CME Group’s (CME) new Micro E-mini equity index futures, which have posted robust trading volume since the contracts were launched in early May.

In July 2019—its third month of trading—volume in the four Micro E-mini futures, based on the S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial indexes, averaged 483,323 contracts a day, according to CME data. Micro E-mini S&P 500 futures led the way, with 207,426 contracts changing hands each day, on average, followed closely by the Micro Nasdaq-100, at 198,298 contracts a day. The Dow- and Russell 2000- based Micros averaged 48,494 contracts and 29,105 contracts a day, respectively. By comparison, E-mini S&P 500 futures had average daily trading of  about 1.16 million contracts in July, but that product has been trading for 20 years, so it’s been a pretty good start for Micro E-mini futures on a relative basis.

Trading so far in Micro E-mini equity index futures, which are one-tenth the size of CME Group’s long-established E-mini equity index futures contracts, has been impressive for a new futures contract, market professionals said. New futures products often take years to gain acceptance and build the necessary liquidity to become viable markets for investors and traders (if that happens at all). “We have been in a 10-year bull market… and these smaller products can make it less expensive to trade,” said Stephanie Lewicky, senior manager for futures & forex at TD Ameritrade. “They are great products for a trader who would like exposure but do not want the pricier E-mini contract.”

Strong Micro E-mini trading in part could reflect an increasing number of retail investors and traders embracing futures markets. With the proportion of retail trades in CME Group’s overall trading activity growing in recent years, Micro E-minis are “a natural next step” for the exchange, Lewicky said.

Smaller Bites for Futures Beginners

A futures contract is an agreement to buy or sell a predetermined amount of a commodity or financial product on a specified date. Futures contracts are typically highly “leveraged,” meaning that through a relatively small amount of money, you can control a relatively large amount of underlying value (often referred to as “notional” value).

Quick History of the E-Mini

The rationale behind the new Micros is similar to that of the original E-mini S&P 500 futures contract CME Group launched in 1999, near the end of a multi-year bull run for U.S. stocks.

The stock market’s rally meant CME Group’s benchmark S&P 500 index futures contract “had grown quite large in terms of notional value and was beginning to soar out of reach for many prospective traders,” CME researchers wrote in a 2012 report.

CME Group developed a smaller, E-mini contract one-fifth the size of the standard S&P 500 futures contract and traded exclusively on the exchange’s Globex electronic system. As electronic trading took off, so did E-mini S&P 500 futures. E-mini S&P 500 futures are now CME Group’s most actively-traded equity index contract.

Electronic trading’s appeal in part stemmed from the “ability to trade on an equal footing with anyone in the world,” the report said. “Where once E-minis followed the standard-sized contracts, the situation reversed, and E-minis now represent the main liquidity source.”

As a decade-long bull market made stocks and traditional equity benchmarks more and more expensive, “smaller-bite” contracts like the Micros can sometimes offer greater accessibility for individual investors.

As of August 9, 2019, the initial margin requirement for one Micro E-Mini S&P 500 futures contract is $693, compared to $6,930 for the E-mini S&P 500 contract. The “multiplier” used to determine notional value for the Micro E-mini S&P is, at $5, also one-tenth the size of the E-mini S&P 500.

A Chance for More Diversification

For beginner futures traders “who just want to test the waters,” Micros mean risking less money by trading a slice of the equity index E-mini products, Lewicky said.

For example, if the S&P 500 is trading at 2,900, one Micro E-mini S&P contract (ticker /MES) would be 2900 x the $5 multiplier, for a notional value of $14,500. By comparison, with the E-mini S&P (ticker /ES), at 2,900 x the $50 multiplier, notional value is $145,000.

The new Micros could also help investors diversify portfolios, market professionals said.

“Futures might be a great tool for sophisticated, self-directed traders,” JB Mackenzie, managing director of futures & forex at TD Ameritrade, said in a CME statement announcing the launch of Micro E-minis. “The Micro E-mini futures can be a good match for those self-directed active traders who want more product choices within their overall portfolio.”

Bitcoin Futures Update

Cboe Global Markets recently announced it would be delisting its Bitcoin futures contract (available to approved clients on the thinkorswim platform from TD Ameritrade under the symbol /XBT). The June contract was the last month for trading. For clients with approval, TD Ameritrade has just opened trading in the CME Bitcoin futures contract (traded under the symbol /BTC), with /BTC equaling five Bitcoins. The new offering will be exactly the same as it has been for the Cboe contract, specifically:

  • Clients will be held to 1.5X higher than initial exchange requirement
  • Clients will need to have a futures account with $25,000 minimum
  • Bitcoin trading is not allowed in Individual Retirement Accounts (IRAs)   

Want more information? Please refer to the TD Ameritrade Bitcoin futures page.

Futures and Cryptocurrency Risks To Consider

Like any investment, trading futures carries risk. Futures allow traders to control contracts with big “notional values” while only putting up a fraction of those values in buying power, or margin. This is more commonly referred to as leverage. Keep in mind, however, that greater leverage can create greater losses in the event of an adverse market movement. Use of leverage isn't necessarily suitable for all investors.

Something else to keep in mind if you’re considering futures is that unlike stocks, a futures contract has a finite life. A stock can be purchased, placed in an account, and held for the long term. In contrast, a futures contract is a much more attentive trade; at some point, the futures contract will expire and cease to exist. If you’re not ready to take a more active role in your investing, futures might not be for you.

If you’re interested in Bitcoin futures, keep in mind that cryptocurrencies have short trading histories and it’s important to understand there are extremely high risks with the potential to lose money. Consider your personal risk tolerance and how you’ve handled major corrections in the past with your other investments. Cryptocurrencies can be extremely volatile and cryptocurrency-related futures can experience similar price swings. If you don’t think you can psychologically or financially withstand double-digit percentage swings in a short period of time, you should probably steer clear.


Key Takeaways

  • CME Group Micro E-mini equity futures see strong volume in first few months

  • Smaller contracts might be more accessible to beginner futures traders
  • Product could offer investors a way to diversify into futures
  • TD Ameritrade is offering clients a new way to trade Bitcoin futures
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