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Home / Futures Blog / Size Does Matter When Trading Mini Agricultural Contracts

Size Does Matter When Trading Mini Agricultural Contracts

March 28, 2012 by Don DeBartolo

Since 2007, when the Chicago Board of Trade introduced mini-sized agricultural contracts, the products have become more attractive to traders since inception, as witnessed by the increase in trading volume. While the mini-corn, mini-wheat, and mini-soybean futures contracts mirror their respective standard contract brethren, there are some nuances to consider while trading:

  • Margin Requirements
  • Price Differential
  • Trading Volume and Open Interest
  • Trading Hours

The margin requirement necessary in a trading account to hold one position of a mini-sized agricultural contract is reduced. The mini-sized contracts are 1/5th the size (bushels) of the standard contracts. One futures contract of Corn controls 5,000 bushels; while one mini-sized contract of Corn controls 1,000 bushels. The decrease in contract size provides a decrease in the equity necessary to hold a position. As of this writing (3/27/2012), the margin requirement to hold one Corn futures position is $2,363 while the margin requirement to hold one mini-sized Corn position is $473. You will notice the margin for the mini-sized Corn contract is 1/5th the size of the standard contract. This discount may allow a trader to hold additional contracts in an account.

Please click to view the Leverage risk disclosure and Standard risk disclosure below.

The minimum price fluctuation or “tick” of a mini-sized agricultural contract is reduced. A Corn futures contract has a “tick” value of 1/4th of a cent or $12.50. A mini-sized Corn contract has a “tick” value of 1/8th of a cent or $1.25. A one cent move in a standard futures contract of Corn is $50; while the same once cent move in a mini-sized contract of Corn is $10. The decrease in “tick” value may allow a wider stop loss with potentially less risk on a mini-sized contract.

Please click to view the Stop Orders risk disclosure below.

The trading volume and open interest in the mini-sized agricultural contracts are dramatically less than its standard counterparts. The trading volume on March 27, 2012 for May 2012 Corn was 276,432 contracts while the open interest was 1,309,026 contracts. During the same session, the trading volume for May 2012 mini-sized Corn was 845 contracts while the open interest was 11,429 contracts. Quite the drop-off in contracts traded; however, the market has the liquidity to enter or exit a position. Instead of a one or two “tick” spread, you may find a three or four “tick” spread. If based on the same underlying market, the mini-sized and standard contracts may trade at different prices throughout the session. In addition, based on potential wider spreads in the market, slippage may result when using stop orders.

Please click to view the Stop Orders risk disclosure below.

The trading hours differ between the mini-sized agricultural contracts and its standard counterpart. The trading window is extended for the mini-sized contracts during the day session by 30 minutes. The Corn futures contracts halts trading for the session at 1:15 PM CT while the mini-sized Corn market remains open until 1:45 PM CT. The extended window allows a trader to adjust a mini-sized contract positioning based on the last traded price of the full-size contract if necessary.

There are similarities between the two contracts as well. Both contracts provide the same deliverable grade, trading months, last trading dates and settlement procedures. However, the nuances mentioned above effect day-to-day trading and should be considered while setting up a trading plan and/or executing trades. Even though margins and price fluctuations are discounted, mini-sized agricultural contract should not be discounted as they viable alternatives to trading the standard agricultural future contracts.

Looking for a trade opportunity in the mini-sized Corn futures market?

The GBE Trade Spotlight advisory service recommended selling the contract at 633’0 based on a formation breakout and trend reversal on March 27th. Contact your Daniels Trading broker for the stop loss and target orders accompanying this recommendation.

Filed Under: Trade Spotlight

About Don DeBartolo

Don C. DeBartolo is a Series 3 licensed broker registered with the National Futures Association (NFA). As a former arbitrage clerk in the S&P 500 futures pit at the Chicago Mercantile Exchange (CME), Don has floor trading experience. Taking his trade execution expertise and ability to navigate a fast-paced environment, Don transitioned to the brokerage side of the business. Since 2005, he has worked at Daniels Trading, a brokerage firm in the heart of the financial district in Chicago. His responsibilities as a broker include providing market analysis, trade execution, and money management to his clients around the world. In March 2010, he developed a formal trade advisory for clients of the firm seeking specific trade recommendations and subsequent risk management.

Due to his widespread proficiency and experience with the futures and commodity options markets, he is able to offer his clients timely insight, specialized trade recommendations, and educational information through various videos and writings.

Studying at Loyola University Chicago, Don discovered the international sport of rugby. Still today, he plays for the Chicago Griffins, a member of the highest league of rugby competition in the United States. Skill and discipline are two traits that carry over from the pitch to the trading screens.

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