For active traders, each market presents a wide range of unique functionalities. Margin requirements, expiration dates, business hours, and applied leverage are a few attributes that differ from product to product. If you’re not up to speed on the nuances of your particular market, then costly mistakes are inevitable.
Fortunately, you can streamline your approach to the contemporary marketplace. One user-friendly option is learning how to trade derivatives on the Small Exchange. In this blog post, we’ll introduce you to the basics of how to trade the Smalls.
The Small Exchange 101: Form and Function
For traders of all sizes and experience levels, the Small Exchange offers an array of speculative and risk management opportunities. And becoming active in the market is straightforward. To get started, all you need is an internet connection, computing power, risk capital, and an affiliated broker. After a few quick tutorials, you’re on your way!
One area in which the Smalls excel is in their simplicity. Uniform construction ensures that there’s no guesswork about contract expiration, trading hours, tick sizes, or pricing. If you’ve ever traded futures, forex, or ETFs, then you’re aware that these factors can vary greatly. With the Smalls, the trading process is vastly simplified:
- Contracts: There are six Small products to choose from, facing the equity, commodity, debt, and currency sectors. Two contracts are offered for each Small: the front-month (current) and the back-month (deferred). As an additional benefit, the Smalls provide traders with pure exposure to the underlying assets.
- Pricing: All Small contracts feature a minimum tick size of 0.01 and a per tick value of $1.00.
- Expiration: All Small contracts expire on the third Friday of the month.
- Trading hours: All Small contracts are traded Monday through Friday, 7 a.m.-4 p.m. CST.
By design, the Smalls combine the capital efficiency of futures with the pricing of stocks. The result is an all-in-one vehicle ideal for the pursuit of nearly any trading or investing goal.
Margin Trading with the Smalls
Anytime you trade derivatives, you must satisfy margin requirements before a broker will facilitate any transaction. This is a major concern for forex and futures traders because margins vary wildly per market. With the Smalls, these concerns are largely eliminated.
Although each Small contract features distinct margin requirements, they are vastly reduced over their futures, forex, ETF, or stock market counterpart. The lower margin rates promote optimal capital efficiency and fully customizable granularity―two items vital to successful traders. When trading a product on the Small Exchange, capital outlays are minimal:
| Product | Margins | Initial | Maintenance |
|---|---|---|---|
| Small Technology 60 (STIX) | 5-15% | $484.00 | $440.00 |
| Small Stocks 75 (SM75) | 5-15% | $523.00 | $475.00 |
| Small US Dollar (SFX) | 1-2% | $165.00 | $150.00 |
| Small Precious Metals (SPRE) | 2-10% | $462.00 | $420.00 |
| Small 10YR US Treasury (S10Y) | 5-25% | $180.00 | $165.00 |
| Small Global Oil Index (GOSME) | 5-30% | Coming Soon! |
Note: Margins are subject to change per current market conditions
As you can see, modest capital requirements make engaging the Smalls attractive to retail market participants. Traders also face very few barriers to buying or selling a Small contract. To illustrate, let’s say that Carey the currency trader is interested in going long the U.S. dollar. Instead of buying or selling a basket of forex pairs, Carey does the following:
- Opens a Smalls-supported software platform like dt Pro
- Checks the updated trading account balance for adequate margin money
- Selects the Small U.S. Dollar (SFX) contract
- Places a buy market order for one lot of SFX
Carey’s order is then filled at the best available price, opening the new position. Once the SFX long goes live, Carey’s trading account is credited or debited $1.00 for every tick that price moves up or down. As long as the margin requirements are being met, the position may be held until contract expiration. Placing a trade on the Small Exchange is as simple as that.
Are You Ready to Trade the Smalls?
The Small Exchange offers traders of all types countless speculative and hedging opportunities. If you’re interested in making the Smalls a part of your trading plan, download our ebook today to learn more.
