What is a Micro E-Mini Future?
Index-tracking Micro E-mini Futures aim to make an advantage of smallness.
Micro E-minis are electronically traded futures contracts that allow you to take positions on the future value of a stock index, commodity, or currency, but in much smaller increments than you might with a regular contract. For example, where the regular E-mini S&P 500 futures contract represents $50 times the price of the S&P 500 Index, the Micro E-mini S&P 500 represents $5 times the price of the S&P 500 Index. The CME Group created them because the classic E-minis had become too expensive for many traders.
As with other futures contracts, traders can use these contracts to hedge other positions or speculate on future market moves—but with a smaller initial outlay of capital. Micro e-mini futures are somewhat different from commodity futures in that index futures are not physically delivered like corn or crude oil, so these contracts are always settled in cash.
Here is a more detailed look at the potential benefits and risks of trading these contracts.
Potential benefits
The Micro E-mini's small size can help unlock several potential benefits:
- Portfolio diversification for less: With futures, you can take on long or short exposure to an entire index of stocks for far less money than it would take to buy or short the same stocks or even the associated index-tracking funds.
- Capital efficiency. Futures are leveraged investments, which means it takes a relatively small initial amount of capital to establish a position in a much larger contract amount. So long as you have sufficient cash or assets in your margin account, you can hold a futures position until expiration. With Micro E-minis, that bond or margin could run from just 5%–7% of the notional value of the contract. (The notional value is calculated by multiplying the size of the contract by the current price. For example, the Micro E-mini S&P 500 contract is $5 times the price of the index. If the index is trading at 5,625, the notional value of the Micro E-mini contract would be $28,125.)
- Flexible risk management: Selling Micro E-mini futures can help investors manage some of the risk associated with their long-term stock portfolios without actually disturbing their stock portfolios.
- Around the clock access: With trading available nearly 24 hours a day, six days a week, traders can respond to market moving events as they occur around the globe.
What are the risks?
As with any futures trading, if a trade goes against you, you may lose more money than you initially invested. (With a stock or bond, your potential loss is limited to the amount you invested.) In fact, any significant move against your position before expiry could lead to a margin call for you to settle. Note that your brokerage may liquidate your position, without contacting you, to meet a margin call.
Under certain (rare) market conditions, you may also find it difficult—or impossible—to close out a position. This situation can occur, for example, when a market reaches a daily price fluctuation limit (limit-up or limit-down) or market circuit breaker.
In addition, stop orders on futures are not guaranteed an execution. Due to exchange rules based on certain conditions at the time of activation, the exchange may reject or substitute an exchange-designated limit order for the originally triggered market order.
Finally, while the nearly 24-hour trading in some products can be an advantage, it could also tempt traders and investors into making more trades than they can reasonably handle, creating the potential for larger losses. Futures trading is hard work and requires a substantial investment of time and energy. Studying charts, reading market commentary, staying on top of the news—it can be a lot for even the most seasoned trader.
How do they work?
The size of the contract refers to a contract multiplier. As noted above, Micro E-minis are one-tenth the size of an equivalent E-mini contract: The S&P 500 Micro E-mini has a $5 multiplier, while the E-mini version has a $50 multiplier. This means traders will gain or lose $5 per point change in the Micro contract versus $50 per point with the regular mini contract.
| Index | Micro E-mini contract | E-mini contract size | Micro E-mini contract size |
|---|---|---|---|
| S&P 500 | Micro E-mini S&P 500 futures (MES) | $50 x S&P 500 Index | $5 X S&P 500 Index |
| Nasdaq-100 | Micro E-mini Nasdaq-100 futures (MNQ) | $20 x Nasdaq-100 Index | $2 X Nasdaq-100 Index |
| Dow Jones | Micro E-mini Dow futures (MYM) | $5 x DJIA Index | $.50 X DJIA Index |
| Russell 2000 | Micro E-mini Russell 2000 futures (M2K) | $50 x Russell 2000 Index | $5 X Russell 2000 Index |
Source
cmegroup.com
Like their E-mini counterparts, Micro E-mini futures trade on a March quarterly expiration cycle (third Friday of March, June, September and December). The tick increments follow their E-mini counterparts as follows:
| Index futures contract specs | Outright | Calendar spread |
|---|---|---|
| Micro E-mini S&P 500 futures | 0.25 Index points= $1.25 | 0.05 index points= $0.25 |
| Micro E-mini Nasdaq-100 futures | 0.25 Index points= $0.50 | 0.05 index points= $0.10 |
| Micro E-mini Dow futures | 1.00 Index points= $0.50 | 1.00 index points= $0.50 |
| Micro E-mini Russell 2000 futures | 0.10 Index points= $0.50 | 0.05 index points= $0.25 |
Source
cmegroup.com
Here are the contract specifications:
Source: cmegroup.com
How do I trade Micro E-mini futures at Schwab?
Micro E-mini contracts trade on the CME GLOBEX trading platform from 6:00 p.m. ET on Sunday through 5:00 p.m. Friday.
Micro E-mini stock index futures are available on Schwab's thinkorswim trading platforms.
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Futures margin, also known as a "performance bond," is the amount of money you are required to deposit in your futures account to establish and maintain a futures position. Futures margin is not a loan. If at any given time the funds in your account drop below the minimum regulatory requirement, or "house" margin requirements, you may be required to immediately deposit additional funds to maintain your position, or your position may be liquidated at a loss. You will be liable for any resulting debits. Charles Schwab Futures and Forex LLC may increase its "house" margin requirements at any time and is not required to provide you with advance notice of such requirement changes or liquidations initiated by Schwab. You are not entitled to an extension of time on any type of margin call.
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