A Closer Look: Micro Futures Trading
Trading Precious Metals, FX, Energy, and Equity Indices
Trade futures and options on Micro products
The Big Thing – Micro Futures Trading
The CME Group launched Micro E-mini futures contracts on May 5, 2019 - These contracts allow market participants to gain exposure to price fluctuations in the S&P 500, Russell 2000, Dow Jones 30 and Nasdaq100 indices at a much lower cost than the existing e-mini futures. Depending on which clearing house you use, you can go long or short markets like the S&P500 and Nasdaq100 with as little as $50 of day-trading margin per contract, offering an effective way to hedge your overall portfolio
Part of the beauty of Micro Futures Trading is that all four of the Micro E-mini futures are 1/10 the size of their respective E-mini futures counterparts. This allows all traders futures exposure without the notional constraints of the larger contracts.
Some things to keep in mind for Micro Futures Contract Trading, is that while a single E -mini S&P 500 futures contract has a value of $50 per each point, the Micro E-mini S&P 500 futures contract has a value of $5 per each point.
While both the Micro E-mini S&P 500 and Micro E-mini Russell 2000 have multipliers of $5, the Micro E-mini Nasdaq-100 has a $2 multiplier, and the Micro E-mini Dow Jones Industrial Average has a 50-cent multiplier.
Example -If the S&P 500 Index is trading at 2750, the notional value of one Micro E-mini S&P 500 futures contract is $13,750.
Similar to the E-mini, the tick increments of the Micro E-mini S&P 500 are quoted in a quarter of one point, a one tick move in the Micro E-mini S&P 500 equates to $1.25. A one-point move, which is four ticks, is worth $5.
This equates to a smaller, more affordable way to access one of the most liquid equity futures in the world.
The tick increment of the other three Micro E-mini contracts vary according to the contract multiplier.
Micro Futures Contract Sizes
Futures contracts come in three varieties: regular, mini, and micro.
The relationship between these three is as follows:
- Regular = 1
- Mini = 1/2
- Micro = 1/10th
Mini futures are the most commonly traded for indexes, such as the S&P 500 or Nasdaq 100. However micro futures have become increasingly popular across all asset classes including currencies.
Normally, futures contracts control an enormous amount of notional currency. For example, one contract on the U.S. Dollar British Pound Sterling pair controls 62,500 pounds.
Micro currency futures contracts control 1/10th the amount of regular contracts, allowing more flexibility and control while maintaining the same capital efficiency.
With the expansion of micro futures contract trading into currencies, traders can create more comprehensive speculation and hedging strategies across multiple asset classes with different correlations.
MICRO WTI CRUDE OIL FUTURES
|CONTRACT SIZE||100 barrels|
|RATIO TO STANDARD CONTRACT||1/10|
|MINIMUM TICK/ PRICE FLUCTUATION||$0.01 per barrel|
|DOLLAR VALUE OF ONE TICK||$1 per contract|
|EXPIRATION SCHEDULE||1 day prior to the expiration of WTI Crude Oil (CL) futures Standard|
|TRADING HOURS||CME Globex: Sun-Fri: 5 p.m. to 4 p.m. Mon-Fri: 60-minute daily trading halt beginning at 4 p.m. CT|
|Micro E-mini S&P 500||Micro E-mini Nasdaq-100||Micro E-mini Russell 2000||Micro E-mini Dow|
|Contract Size||$5 x S&P 500 Index||$2 x Nasdaq-100 Index||$5 x Russell 2000 Index||$0.50 x DJIA Index|
|Trading Hours and Venue||CME Globex: Sun-Fri: 5pm to 4:00pm|
|Minimum Tick/ Price Fluctuation||Outright 0.25 Index points||0.25 Index points||0.10 Index points||0.50 Index points|
|Dollar Value of One Tick||$1.25 per contract.||$0.50 per contract.||$0.50 per contract.||$0.50 per contract.|
|Product Code||CME Globex: MES
CME ClearPort: MES
|CME Globex: MNQ
CME ClearPort: MNQ
|CME Globex: M2K
CME ClearPort: M2K
|CME Globex: MYM
|Contract Months||Five months in the March Quarterly Cycle
H, M, U, Z, H (March, June, September, December, March)
|Delivery||Cash settlement to Final Settlement Price|
|Termination of Trading||8:30 a.m. CT on 3 rd Friday of contract delivery month
Trading in expiring futures terminates at 8:30 am on Last Day of Trading.
|CONTRACT SIZE||0.10 bitcoin|
|TRADING HOURS||CME Globex: Sunday - Friday 6:00 p.m. - 5:00 p.m. ET (5:00 p.m. - 4:00 p.m. CT) with a 60-
minute break each day beginning at 5:00 p.m. ET (4:00 p.m. CT)
CME ClearPort: 6:00 p.m. Sunday to 6:45 p.m. Friday ET (5:00 p.m. - 5:45 p.m. CT) with a 15-minute maintenance window between 6:45 p.m. - 7:00 p.m. ET (5:45 p.m. - 6:00 p.m. CT) Monday - Thursday.
|MINIMUM PRICE FLUCTUATION||Outrights: $5 per bitcoin = $0.50 per contract
Spreads: $1 per bitcoin = $0.10 per contract
|LISTING CYCLE||Six consecutive monthly contracts inclusive of the nearest two December contracts.|
MICRO TREASURY YIELD
|MICRO 2-YEAR YIELD FUTURES||MICRO 5-YEAR YIELD FUTURES||MICRO 10-YEAR YIELD FUTURES||MICRO 30-YEAR YIELD FUTURES|
|SETTLEMENT||Cash-settled to BrokerTec 2-Year benchmark||Cash-settled to BrokerTec 5-Year benchmark||Cash-settled to BrokerTec 10-Year benchmark||Cash-settled to BrokerTec 30-Year benchmark|
|PRICE CONVENTION||US Treasury Yield|
|CONTRACT SIZE||$10.00 DV01|
|TICK SIZE||$1.00 (1/10 of 1 bp)|
|# OF EXPIRIES||2 nearest monthly contracts|
|TERMINATION||Last Business Day of Month|
|Micro AUD/USD||Micro USD/CAD||Micro USD/CHF||Micro EUR/USD||Micro GBP/USD||Micro INR/USD||Micro USD/JPY|
|UNDERLYING CURRENCY||Australian dollars||US Dollar||US Dollar||Euros||British pounds||Indian rupees||US Dollar|
|CONTRACT SIZE||10,000 Aussie Dollars||10,000 US Dollars||10,000 US Dollars||12,500 Euros||6,250 Pounds||1M Rupee||10,000 US Dollars|
|RATIO TO STANDARD CONTRACT||1/10||1/10||1/10||1/10||1/10||1/10||1/10|
|MINIMUM TICK/ PRICE FLUCTUATION||0.0001 USD||0.0001 CAD per USD||0.0001 CHF per USD||0.0001 USD per EUR||0.0001 USD per GBP||0.01 USD per INR||0.01 JPY per USD|
|VALUE OF ONE TICK||$1 per contract||1 CAD per contract||1 CHF per contract||$1.25 per contract||$0.625 per contract||$1 per contract||100 JPY per contract|
|TRADING HOURS||Sunday - Friday 5:00 p.m. - 4:00 p.m. CT with a 60-minute break each day beginning at 4:00 p.m. CT|
Micro Futures Contract Trading Options
In response to overwhelming demand, CME Group listed options on Micro E-mini S&P 500 and Micro E-mini Nasdaq-100 futures contracts. These options provide both a smaller notional value and precision risk management to all traders.
Let’s look at these contracts in more detail.
First, the underlying futures contract. The micro options will derive their value from their respective Micro E-mini futures contracts. Upon expiration, they will deliver a Micro E-mini futures contract.
It’s important for traders to know and understand the underlying futures contract that the option will deliver. Contract specifications and other tools are available on Cannon Trading to assist traders in identifying the underlying future for each option.
Like the Micro E-mini futures contracts, the options on these futures will have a contract multiplier that is 1/10th that of the classic E-mini contracts. For example, an option on the E- mini S&P 500 futures contract has a fifty-dollar multiplier, just like the underlying future.
Similarly, an option on the Micro E-mini S&P 500 futures contract will have a five-dollar multiplier, just like its underlying future.
For options on the Micro E-mini Nasdaq-100 futures contract, the contract multiplier is two dollars. Because the contract multiplier for the futures contract is two dollars.
These smaller, right-sized, Micro E-mini options contracts will allow for greater precision in your option trading strategies.
The minimum price fluctuation, or tick increment, for micro options will be dependent upon the options cost, or premium.
It is important to note that the option premium itself can be affected by several factors – including the price of the underlying futures, volatility, interest rates, and time to maturity – just to mention a few.
For the Micro E-mini S&P 500 options, the minimum tick increment is generally point two five index points – equal to one dollar and twenty-five cents per option.
If the option is priced at or below five, the minimum tick increment is reduced to zero point zero five index points – equal to twenty-five cents.
For the Micro E-mini Nasdaq-100 options, the minimum tick increment is point two five index points – equal to fifty cents per option.
If the option is priced at or below five, the minimum tick increment is reduced to zero point zero five index points – equal to ten cents.
Options are either European or American style, which dictates how they can be exercised.
Here’s some additional information you should know about options on Micro E-mini futures.
They will be available to trade on CME’s Globex electronic platform, Sunday afternoon through Friday afternoon, nearly 24 hours per day.
Similar to other CME Group equity index products, margin offsets will be available, and the options are cleared through CME Clearing.
There you have it, options on Micro E-mini futures contracts, another option for precision risk management and capital efficient market expression.
As both interest in and adoption of bitcoin continues to accelerate, there is increased interest from market participants to engage in the thriving cryptocurrency market. If the standard Bitcoin futures contract with its five-bitcoin multiplier was not the right size for your trading strategy, or if the price appreciation of bitcoin itself has made the standard contract too big, there is now a new tool that you can use to access the market and manage your risk – Micro Bitcoin futures.
A smaller-sized contract allowing an efficient and cost-effective way to hedge bitcoin price risk or fine-tune bitcoin exposure. This contract will provide the same features as the standard contract with a smaller capital requirement.
Similar to the standard sized contract, Micro Bitcoin futures (ticker symbol MBT) is a USD ‒ which serves as a once-a-day reference rate of the US dollar price of bitcoin.
While a standard-sized Bitcoin futures contract is equivalent to five bitcoin, the Micro Bitcoin futures contract is equivalent to one-tenth of one bitcoin ‒ making the micro contract 1/50 the size of the larger Bitcoin futures contract.
For example, if the price of bitcoin (as tracked by the BRR) is $50,000, the notional value of one Micro Bitcoin futures contract is $5,000.
The tick increment of Micro Bitcoin futures is five index points, making a one tick move in the Micro Bitcoin contract equivalent to $0.50.
This equates to a cost-efficient way to participate in the growing bitcoin market. Micro Bitcoin futures are listed on the nearest six consecutive monthly contracts, inclusive of the nearest two December contracts.
For example, assume it’s January and the six consecutive contract months are January, February, March, April, May, and June. In addition, that year’s December contract plus next year’s December contract will also be listed. As one contract expires, the next contract to complete the six-month lineup is added. When the December contract expires, the June contract becomes active along with the December contract for the next year. So, at any time, there are six consecutive monthly contracts and only two December contracts listed. This process continues throughout each year.
Micro Bitcoin futures will follow the same expiration as the larger contract ‒ expiring the last Friday of the month and settling in cash to the CME CF Bitcoin Reference Rate on the last day of trading. Micro Bitcoin futures will trade Sunday through Friday, nearly 24 hours per day and will be block trade eligible.
Micro WTI Crude Oil
The Micro WTI Crude Oil futures join the Micro product suite, providing additional trading opportunities in the most liquid commodities in the world.
If you’re looking for a smaller-sized contract to fit your trading needs, look no further than CME Group Micro futures contracts.
With WTI, there are no exogenous fundamentals, meaning no CEO changes to worry about, no accounting scandals, no earnings reports. It’s just simple supply and demand. How much crude is out there and how much of it are consumers of crude currently consuming.
There are also plenty of interesting trends in oil markets. As mentioned above, crude oil is about supply and demand, which defines how it trades. Look at a long-term WTI chart and you will see sideways channels, followed by long trends, followed by sideways markets. Wash, rinse and repeat. If you catch a trend, you may be able to ride it for quite some time.
For a trader who knows how to manage risk, this is a compelling asset.
So, why isn’t everyone trading it? For many market participants, it may be related to the size of the benchmark contract. A standard WTI contract has a notional value of 1,000 barrels of oil times the agreed upon futures price and is also deliverable by physical oil upon expiration.
This has meant that WTI crude has often had too large of a margin requirement for many market participants and has been primarily used as an institutional hedging tool.
But as U.S. crude continues to gain significance in global oil markets, we have seen an increase in demand for additional tools to help a broader base of customers access the liquidity and transparency of the WTI contract, but with more flexibility and less margin upfront.
Here’s an example: Recently I was asked in a podcast to give my best trade setup for the day. It happened to be a long in WTI crude. The trade was buying CLN at $66.70, with a stop at $64.10 and a target of $70.10. This amounted to risking 260 ticks to make a possible 340 ticks, a solid 1.3/1 reward to risk ratio.
The dollar risk in the standard WTI contract would be $2,600 with a potential reward of $3,400. Someone with a $10,000 account, however, would be risking a whopping 26% of their total account value to place this trade. Even the E-Mini Crude contract, which would be half the risk in dollars and half the potential reward, would still reach 13% of the total account value. That is still too high a margin for some traders.
Micro WTI will be one-tenth the size of the standard WTI contract and cash-settled, providing a new tool for traders to fine-tune their exposure to crude oil markets and enhance their trading strategies in a more precise way.
In the example above, a trader with a $10,000 account could take the same trade and only risk $260, (2.6% of total account value) to make a possible $340 per contract.
Instead of one standard WTI contract or two E-Mini WTI contracts, I can enter 10 Micro WTI contracts and portion out my exits, allowing me to capture more of the trend. Instead of cutting the entire trade at my target level of $70.10, I can sell two there and then two more at $72.10 and two more at $74.10, $76.10, and $78.10 for a blended average exit price of $74.10. That would bring the profit from $3,400 to $7,400. One could also scale into a larger position in the same fashion.
With Micro WTI futures, a wide array of market participants – from institutions to smaller, sophisticated active traders – will now be able to access the benefits of the global benchmark WTI futures. Risk-control will now be more efficient, and the market on a fascinating commodity functioning on supply and demand will be more accessible.
Micro Treasury Yields
The micro contracts will be roughly one-tenth of the size of the CME’s existing Treasury futures contracts. Each basis point move in the underlying Treasury will be worth $10.
The new contracts will also be the first at the CME to be based on the so-called “on-the-run” Treasuries, which are the most recently issued and most actively traded Treasuries.
That will make it easier for fixed income professionals to trade the basis between these Treasuries and older issues, which are known as “off-the-runs.”
“We’re giving much greater choice, much greater granularity and the ability to trade that basis between the on-the-runs and the off-the-runs,” Tully said.
Micro Forex(FX) Futures
Forex markets are the most liquid in the world.
George Soros famously made $1 billion in a single day betting against the British Pound in 1991. (An outlier performance by all means)
Yet, many retail traders and investors ignore this market entirely for a variety of reasons including:
- Brokers who may trade against their clients
- Some Jurisdictions with a “relaxed” regulatory environment
- Over-the-counter nature of the market
- Wide spreads
- High initial margins
Forex Futures solve many of these problems.
Yet, they simply don’t offer enough flexibility for an average retail trader.
That’s why Forex micro futures was a game-changer.
Futures products are a unique derivative mechanism that traders and investors can use for both speculation and hedging. They employ leverage to control more of an asset than you could otherwise.
Dating back to the Dojima Rice Exchange in 1730, futures contracts lock in a specific price for a product, index, or basket of goods at some date in the future.
Currency futures are a derivative contract that follows a specific currency pair where one is the U.S. Dollar.
Unlike options contracts where the buyer has the right to execute the contract, futures come with an obligation.
That means physical assets like oil require the buyer to take delivery of the product, while index futures are cash-settled.
Currency futures are physically settled which means anyone holding those products at expiration will be required to take delivery of the currency product itself.
Futures products trade continuously from 6:00 P.M. EST on Sunday until 5:00 P.M. EST Friday with a one hour break from 5:00 PM – 6:00 PM EST each day.