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Micro E-mini Futures Off to Strong Start

Posted by TopstepTrader on June 11, 2019

microscope-closeup

Smaller versions of popular stock index futures contracts started trading last month and they’re off to a respectable start. CME Group announced plans to launch the contracts a couple of months ago. Each “micro” equals one-tenth of some of the more popular stock index futures. Investors seem to like the new products: trading volumes are ramping up.

Micro futures are smaller versions of mini contracts. For example, the S&P 500 E-mini (ES) was created in 1997 to equal one-fifth of the larger S&P 500 Index futures and is today one of the most actively traded futures in the world; it’s not unusual to see more than 1 million traded in a single day. Now comes the micro-mini, a pint-sized version of ES. It trades under the ticker MES.

How E-minis Work

Micro E-minis were listed on the S&P 500 as well as the NASDAQ 100, the Dow, and the Russell 2000. For example, while the E-mini S&P Futures (ES) have a multiplier of 50 ($50 per one-point move), the micro contract will be one-tenth of that, or $5. The table below shows how 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

 

Micro contracts have many of the same features as the bigger E-minis. Trading happens almost 24/7, and the settlement rules for minis and micros are the same. However, the margins to trade micros are a lot less.

A Path into Larger Positions

In addition, micro contracts allow smaller traders to scale into larger positions. For example, buying five micros in the morning and five more midday, then selling all ten in the afternoon is equal to buying and selling one ES futures contract. Notice, from the chart of MES since its inception (Figure 1), how it mirrors the price and action of ES futures. So, other than size, trading the two products is virtually the same.

MESJuneFutures060619

Figure 1: MES Futures (June) 

CME created micro contracts to address investor demand for smaller versions of ES and other stock indexes. 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 saw rapid growth in its non-institutional traders in 2018, which grew by 27 percent.


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In the world of trading, a successful new product is one that attracts trading activity because volume is a key element of determining an investment’s liquidity. High volume, whether it’s shares in the stock market or contracts in futures or options, typically suggests an abundance of buyers and sellers and, as a result, tighter spreads between bids and offers. While not all micros have attracted the same interest, MES is off to a strong start. It traded more than 400,000 contracts on June 3 alone.

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Topics: Futures, E-Mini S&P

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