CME Group recently launched a set of Micro E-mini equity index futures, offering smaller retail investors a chance to diversify into futures trading.
CME Group Micro E-mini equity futures see strong volume in first few months
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.
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).
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.
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.”
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:
Want more information? Please refer to the TD Ameritrade Bitcoin futures page.
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.
TD Ameritrade offers a broad array of futures trading tools and resources. Access more than 70 futures products virtually 24 hours a day, six days a week.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
Futures and futures options trading is speculative, and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.
Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC).
Futures and futures options trading services provided by TD Ameritrade Futures & Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.
Leverage carries a high level of risk and is not suitable for all investors. Greater leverage creates greater losses in the event of adverse market movements.
Virtual currencies including Bitcoin experience significant price volatility, and fluctuations in the underlying virtual currency’s value between the time you place a trade for a virtual currency futures contract and the time you attempt to liquidate it will affect the value of your futures contract and the potential profit and losses related to it. Be very cautious and monitor any investment that you make.Like all futures products, speculating in these markets should be considered a high-risk transaction.
Be mindful that futures contract margin requirements vary for each product, and they can change at any time based on market conditions. TDAFF reserves the right to increase margins at any time without notice.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2021 Charles Schwab & Co. Inc. All rights reserved.