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Micro E-mini Contracts Explained

What Are Micro E-Mini Equity Index Futures?

This week, the CME (Chicago Mercantile Exchange) launched Micro E-mini Equity Index Futures. These are smaller versions of the popular E-Mini products that have been around since 1997. This is a strategic move being made because of the dramatic increase in the notional value of the original contracts, which has made trading E-Mini products somewhat onerous for the average retail trader in terms of volatility and margin requirements. In an effort to lessen the burden and make trading Equity Index Futures more accessible to a larger population of traders, the CME has created this pint-sized version of the original product.

The new contracts will track the four major Stock indices: S&P 500, Nasdaq 100, Dow Jones Industrial Average and The Russell 2000 small cap index. A Micro E-mini Equity Index Futures contract will be one tenth the size of their big brethren.

How to Calculate the Notional Value of Micro E-Mini Equity Index Futures Contracts

Below is an illustration of the multiplier change between the standard E-mini and the new Micro E-Mini contracts.

Chart showing the multipliers for Micro E-Mini Equity Index Futures contracts

The multiplier is how we calculate the notional value of futures contracts.  As of the time of this writing, the value of the E-mini S&P 500 is 2900. If we multiply 2900 by the point value ($50) the value of this contract is $145,000. The Micro contract is reduced to one tenth of that by using a multiplier of $5. This would result in a value of $14,500, making it more palatable to the smaller retail trader.

The tick value will correspondingly be one tenth the size on all the Micro contracts as seen below.

Chart showing the tick values for Micro E-Mini Equity Index Futures contracts

 

Micro E-Mini Equity Index Futures Ticker Symbols: 

  • Free Trading WorkshopS&P 500 Micro E-mini : MES
  • Nasdaq 100 Micro E-mini : MNQ
  • Dow Jones Micro E-mini : MYM
  • Russell 200 Micro E-mini : M2K

These will be listed on the same quarterly cycle as the standard E-mini contracts : December, March, June, and September. In addition, the trading times will mimic those of the standard E-mini’s as well.

Benefits of Trading Micro E-Mini Equity Index Futures

  • Opens up the opportunity to trade the Stock Index Futures markets to traders that would otherwise not have the funds to do so
  • Could be used to test or learn a strategy with less capital at risk
  • The smaller size could allow more versatility for traders who want to implement longer term strategies, but that the larger contracts may have restricted them from due to the higher risk
  • Will also allow traders to be able to scale (enter and exit positions in increments)

Risks of Trading Micro E-Mini Equity Index Futures

  • Most brokers (at the time of this writing)  will charge the same commissions per contract as for standard E-minis, which is roughly $1.25 per side or $2.50 round turn (for the buy and sell) . This means that one would need to have a profit of 2 ticks on every trade in order to break even. This is not a big deal but can have an effect on traders that only trade one of these smaller contracts.
  • The liquidity (the volume of contracts traded) may be a lot less initially which may affect the spreads (bid and ask) and cause slippage on stop market orders.

All and all, these could be a great avenue for traders to execute and practice trading strategies while having a small amount of skin in the game rather than trading on a simulator. This could be a great benefit to many traders. As always, before you start trading these products make sure you understand the stock market and the asset you are trading.

Much success and happy trading, until next time, I hope everyone has a great day.


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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