If you have ever picked up the business section of your local newspaper or tuned into CNBC, then chances are you’ve heard of the U.S. equities indices. From the traditional Dow Jones Industrial Average (DJIA) to the tech-driven NASDAQ, stock index products provide investors a vast array of unique financial opportunities.
In practice, there are many ways of trading the U.S. equities indices. Among the most popular are exchange traded funds (ETFs), futures, mutual funds, and the outright purchase of corporate stocks. Launching on May 6, 2019, the Micro E-mini futures products offered by the Chicago Mercantile Exchange (CME) will provide active traders with yet another way of engaging these exciting markets.
Micro E-mini Futures vs. ETFs
Internationally renowned for liquidity and volatility, the U.S. stock market is a benchmark of global economic performance. With corporate listings ranging from industrials to technology, investors have access to a diverse array of investing options. However, for many active traders, futures and ETF products are often preferred.
An ETF is a basket of investments combined into a single product, with shares then being offered for public trade. ETFs have gained a massive following in recent years, boasting an aggregate value of $5 trillion globally. Among the most popular ETFs are those that track the big four U.S. equities indices.
In the futures markets, equities products have also garnered a massive following. Contracts such as the E-mini S&P 500, E-mini NASDAQ, and E-mini DOW attract consistent trading volumes. The CME’s brand new lineup of Micro E-mini futures are the latest in equities futures, designed to give traders a low-leverage way of engaging the U.S. stock market.
Whether ETFs or futures are better suited for your situation depends on your available resources and trade-related objectives. However, for active traders, Micro E-mini and other futures products offer several unique advantages over ETFs:
- Flexibility: In futures, traders can easily take long or short positions in a given market, making it possible to profit from rising or falling asset prices. While it’s technically possible to accomplish this in ETFs, limitations do exist in the form of extensive margin requirements and trading restrictions.
- Low commissions: Futures feature a relatively low per round-turn commission and fee structure. ETF commissions vary but can be as much as $20 per trade.
- No management fees: ETFs qualify as a managed fund, which means that you have to pay an annual fee to participate. On average, fees run in the neighborhood of 0.44% annually on deposit.
- Business hours: Futures are traded electronically on a near-24/5 basis. ETFs, specifically those based upon equities, are typically limited to the exchange’s business hours.
CME Micro E-mini Equities Futures
Flexibility and leverage are two of the primary advantages of futures trading. The ability to buy or sell assets with a relatively small capital allocation offers participants opportunities that simply do not exist in other markets. Micro E-mini futures further enhance these opportunities by offering traders a chance to trade the equities indices via a smaller contract.
In much the same way the E-mini products reduce the leverage required, compared to their full-sized counterparts, the Micro E-minis minimize exposure even further. The Micro E-minis are 1/10th the size of a conventional E-mini contract. This size reduction means that you can trade the same great products with less capital and lower margin requirements. Here are the Micro E-mini futures equities indices products available at the CME:
|Index||Base E-mini Contract||Symbol||Tick Size|
|S&P 500||E-mini S&P 500 (ES)||MES||$1.25|
|DJIA||E-mini DOW (YM)||MYM||$0.50|
|NASDAQ-100||E-mini NASDAQ (NQ)||MNQ||$0.50|
|Russell 2000||E-mini Russell (RTY)||M2K||$0.50|
Perhaps the largest advantage to trading Micro E-mini futures is the vastly reduced tick size. For instance, the Micro E-mini S&P 500 is valued at $1.25 per tick, in comparison to the regular ES size of $12.50. Strategically, the reduced margins free up the trader to hold an open position for an extended period, regardless of drawdown or overnight margin considerations.
Getting Started with the Micro E-minis
For more information on how the CME’s new Micro E-mini equities products can benefit you,contact a broker at Daniels Trading today. Whether you’re a market newbie or a seasoned vet, Daniels can help make futures a valued part of your portfolio.