Touted as long overdue by many in the derivatives community, the launch of Micro E-mini futures by the Chicago Mercantile Exchange (CME) on May 5, 2019, brought the leading U.S. equities indices online to the retail world. In the first four days alone, participants traded almost 2 million contracts ― the CME’s most successful product initiation in its 171-year history.
So, how can you benefit from actively trading Micro E-mini Futures? Let’s dig into a few key elements of these markets and talk about the many advantages afforded to active traders.
Choices, Choices
The Micro E-minis provide retail traders a collection of options encompassing the vast majority of the U.S. equities markets. Aside from pink sheet or foreign listings, the Micro E-minis give traders a way to engage small-, mid-, and large-cap stock indices. If you’re an equities buff, then these four distinct products are for you:
| Product | Symbol |
|---|---|
| Micro E-mini S&P 500 Index Futures | MES |
| Micro E-mini DJIA Index Futures | MYM |
| Micro E-mini NASDAQ-100 Index Futures | MNQ |
| Micro E-mini Russell 2000 Index Futures | M2K |
Just as the CME’s full-sized and E-mini listings do, Micro E-mini futures are priced in relation to the underlying index. This attribute promotes efficient and intuitive trading for those involved in the market, minus undue tracking errors.
Manageable Contract Size and Tick Value
In the same spirit as the E-mini lineup of products, the Micro E-minis reduce the applied leverage or “size” of the contract. The Micro E-minis are effectively one-tenth the size of a standard E-mini product. This smaller size gives retail traders of all capitalizations the ability to implement a wide-variety of previously untenable strategies.
When it comes to holding an open position in the market, tick value is a major consideration. If too big, profitable trades are often prematurely exited. If too small, a golden opportunity may slip by the wayside. Micro E-mini futures give you the ability to tailor tick value to any specifications.
Here are the tick values for one-, two-, and three-lot positions of each product:
| Product | Tick Value (1) | Tick Value (2) | Tick Value (3) |
|---|---|---|---|
| Micro E-mini S&P 500 | $1.25 | $2.50 | $3.75 |
| Micro E-mini DJIA | $0.50 | $1.00 | $1.50 |
| Micro E-mini NASDAQ-100 | $0.50 | $1.00 | $1.50 |
| Micro E-mini Russell 2000 | $0.50 | $1.00 | $1.50 |
The strategic implications of the reduced tick values of the Micro E-minis are extensive. Adopting strategies with wider stop losses and letting an open position “breathe” becomes possible. In addition, the using multi-bracket order functionality is also feasible. If actively trading a conventional E-mini contract, both methodologies would require a much greater capital allocation, potentially making each a nonstarter.
Reduced Margins
In the same spirit as smaller tick values, the reduced margin requirements associated with Micro E-mini futures can open the door to an array of trading opportunities. Margin requirements for the Micro E-minis do vary depending upon broker. However, here is a basic set of margin values for quick reference:
| Product | Initial | Maintenance | Intraday |
|---|---|---|---|
| Micro E-mini S&P 500 | $630 | $630 | $100 |
| Micro E-mini DJIA | $649 | $590 | $100 |
| Micro E-mini NASDAQ-100 | $836 | $760 | $100 |
| Micro E-mini Russell 2000 | $390 | $355 | $100 |
The low intraday margins allow for larger position sizing on short-term trade setups. Accordingly, the reduced initial and maintenance margins give active traders the ability to hold open positions through the daily “overnight” break, weekend, and holiday market closures. As a result, the adoption of longer-term strategies such as swing trading or intermediate-term investing becomes possible.
Going Live with Micro E-mini Futures
In many ways, the Micro E-minis give equities index traders unprecedented freedom and flexibility. In years past, carrying an open position into the daily close or trading multiple contracts required a significant financial commitment. Now, active futures traders can attack the U.S. equities indices from various angles without breaking the bank.
For more information on the Micro E-minis and how they may complement your plan for the markets, schedule a free consultation with a member of the Daniels Trading team today.
