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CME to Launch Micro E-mini Futures in May

Posted by TopstepTrader on March 14, 2019

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Smaller versions of popular stock index futures contracts are on the way. CME Group announced this week that it will list Micro E-mini futures in May. The new products will equal one-tenth of some of the more popular stock index futures contracts today and these new vehicles are intended to make index futures trading more accessible to individual investors.

And before you ask, we know what you're thinking: Will TopstepTrader offer some of these new indexes if and when they become available?


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Smaller than E-Minis

If the term Micro-Mini sounds redundant, that’s because it is. The odd-sounding name is CME’s way of saying that the product is smaller than a mini-product. Most of you are already familiar with E-mini futures: the contracts were created in 1997 to equal one-fifth of the larger S&P 500 Index futures.

The CME says there’s now a need for a smaller version of E-minis because the value of one contract has increased substantially over the years. According to CME, “The notional value of the E-mini S&P 500 futures contract has increased from ~$47K on the date that it launched to ~$125K on December 31, 2018. The amount of capital needed to access the futures market has become too burdensome for many individual traders.”

In addition, the exchange is seeing rapid growth in its non-institutional traders, which grew by 27% in 2018.

Where to Find Micro-Minis & What to Expect

Micro E-minis will be listed on the S&P 500, the NASDAQ 100, the Dow, and the Russell 2000. While the E-mini S&P Futures (ES) have a multiplier of 50 ($50 per 1-point move), the micro contract will be one-tenth of that, or $5. The table below shows how the micro contracts compare to their larger peers. 

INDEX

E-mini Multiplier

Micro Multiplier

S&P 500

$50

$5

NASDAQ 100

$20

$2

Dow Jones Industrials

$5

$0.50

Russell 2000

$50

$5

The micro contracts will have many of the same features as the bigger E-minis. Trading will happen almost around the clock and the settlement rules will be the same. However, the margins will obviously be a lot less.

In addition, the micro contracts will allow smaller traders to scale into larger positions. For example, buying five micros in the morning and five more midday and then selling all ten in the afternoon is equal to buying and selling one ES futures contract.

Time will tell if the micro products develop the same liquidity as the E-minis. The S&P 500 E-mini contract is one of the most actively traded futures and it’s not unusual to see more than a million traded in a single day. Chances are, the new pint-sized versions will appeal to those individual traders who really want to participate in the market but currently balk at the larger notional sizes of the S&P 500 E-minis and other index futures contracts.

Will TopstepTrader offer micro contracts?

The answer is: it depends. There are a lot of things to consider with the micro contracts. While they offer the ability to trade smaller products, there are still commissions and liquidity to take into account. The smaller contracts have the ability to generate very high commissions for brokers. That's because commissions are per contract, without regard to the size of the contract. So one E-Mini S&P 500 contract will have the same standard commission as one E-Mini Micro S&P 500 contract. If you are now purchasing 4 micro contracts instead of 1 mini, that's a lot of commissions to make up for.

The second issue is liquidity. We would want the E-Mini Micro to have spreads that are tight, with a deep pool of liquidity that enables traders to get in and out of positions easily without slippage. While that is likely to happen during day trading hours of 8:30 AM to 3 PM CT, it may not be the case overnight. 

We're always looking to expand traders' options and believe that these contracts will offer value.  But with the Trading Combine, we will first make sure that above the convenience of smaller risk, the contracts offer safe trading for anyone in our program. 

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Topics: Futures, E-Mini S&P, CME

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