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.
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.
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.
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.
STOP ORDERS DO NOT NECESSARILY LIMIT YOUR LOSS TO THE STOP PRICE BECAUSE STOP ORDERS, IF THE PRICE IS HIT, BECOME MARKET ORDERS AND, DEPENDING ON MARKET CONDITIONS, THE ACTUAL FILL PRICE CAN BE DIFFERENT FROM THE STOP PRICE. IF A MARKET REACHED ITS DAILY PRICE FLUCTUATION LIMIT, A "LIMIT MOVE", IT MAY BE IMPOSSIBLE TO EXECUTE A STOP LOSS ORDER.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.