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Trading Micro E-minis …… think like a Football coach!

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Back in May of this year the CME Group launched micro E-mini contracts for 4 major indices: Nasdaq100, Dow Jones 30, S&P500 and the Russell 2000.  The original E-mini was brought out back in the late 1990s so our view on chatting with colleagues in the market, including our friends at Dorman, was that these contracts were likely to be popular.  But it’s fair to say we really underestimated just how these would take off!

 

What are they?  Why have they been introduced?

A Micro E-mini, just like an E-Mini, is a futures contract that allows an investor to buy or sell a financial index.  However, they’re 1/10 the size of an E-Mini (hence the Micro, did you see what they did there?) and thus can be traded by more people and also be used in different ways.  The CME saw it as an opportunity to open Futures trading up to a bigger audience and start to take a bite out of the ETF market.

 

What’s been the market response?

Fairly spectacular actually.  Micro E-minis have been the CME Group’s most successful product launch:

  • Over 32M contracts traded in total, with an average daily volume of 500k+
  • Single-day record volume of 1.38m on August 1st 
  • Individual Micro E-mini contracts: S&P (MES) 15.8M+, Nasdaq (MNQ) 11.5M+, Dow (MYM) 3.2M+ and Russell 2000 (M2K) 1.7M+ 

What’s more is 26% of the volume came from outside of the US with trades submitted from over 130 countries in total.

 

Why should I care?

The lower value of the Micro contract means that markets that may have seemed too costly to trade can now be traded and because you are effectively splitting your spend you can use these contracts for hedging and lowering your overall risk.  

For example let’s look at the S&P where an E-mini contract is $50 per point.  At this price an adverse movement of just 10 points suddenly puts you $500 down, putting a strain on both your emotions and the margin in your account.  

If you used Micro E-mini contracts then you can proportionally lower your risk e.g. you could use 5 contracts at $5 each so your total exposure under the same scenario would only be $250.  

But what if I’m a big spender and I normally trade multiple contracts of an E-mini?  Well in that case they’re still worth looking at, maybe you trade 2 contracts at a time and want to do more but can’t push it to 3.  In that case you could use 25 Micro E-mini contracts thus allowing you to increase your position.

Micro E-minis are also a great way of really understanding trading with much lower.  If you’ve never traded the Dow before you can now do so and you’ll only be risking 50 cents per point; it’s like having training wheels on your bike! 

If you are new to trading then micros are a super way to get started.  Much better than a simulated account. Why? Because the intense feelings that are part of trading kick in as soon as real money is on the table.  Those feelings don’t happen with a simulated account.

 

What do Inteligex think?

Inteligex has the flexibility to set different contract values for Bank, Target and Extended trades.  This functionality works perfectly with Micros as you can adjust your risk/reward according to the market conditions.  

Consider the scenarios below:

  • Tight Market, no clear direction, choppy conditions – add more Micro E-minis into Bank, keep some in Target and don’t have any in Extended Trades
  • Medium market, moving in both directions – hold the same number of Micro E-minis in Bank and Target and put a lower number in Extended Trades
  • Fluid market, range breakouts possible – reduce or remove the  number of Micro E-minis in Bank,  keep some in Target and put a higher number in Extended Trades

 

What’s it got to do with Football?

Think of the way a skilled Football coach controls his team.  Assess the game conditions (in this case the market) and then decide on your Game Plan, are you running are you passing, are you going to mix it up a little.  You are the head Coach of your franchise when you trade. Inteligex will follow your play calls and execute them as you decide.

The bottom line is we love Micros!  It enables you to be far more flexible in your approach to the market and importantly you can have much greater control over your risk exposure.

Speak to your broker about how to set up Micros and then come talk to us about using them with Inteligex Multi-Contract Trading.

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