While there is no central marketplace for the foreign exchange (forex) market, foreign exchange futures are one way to trade forex through exchange-traded contracts. Forex futures are similar to other futures contracts in that the currency pairs' exchange rates act as the underlying commodity in the exchange. In 2009, the Chicago Mercantile Exchange (CME) introduced a smaller version of currency futures contracts – the E-micro forex futures suite. These six currency pairs trade at one-10th the size of the corresponding forex futures contracts and make forex futures trading more accessible to a wider variety of traders and investors, including active individual traders, small commodity trading advisors (CTAs) and small and medium enterprises (SMEs). Here we'll take a look at these forex futures and show you how you can incorporate them into your trading.
TUTORIAL: The Forex Market

What Are E-micro Forex Futures?
E-micro forex futures contracts include six exchange-traded currency futures contracts that are one-tenth the size of the traditional currency futures contracts. For the trader or investor, this equates to reduced margin requirements and less risks than are associated with the E-micro's big brothers. The E-micro forex futures contracts are traded exclusively on CME Globex, which is the Chicago Mercantile Exchange's electronic trading platform and the world's largest regulated forex marketplace. Figure 1 shows a comparison of contract specifications between the standard currency futures contracts and their corresponding E-micro contracts. These three smaller contracts are fully fungible with the full-size forex futures contracts.

forex, fx
Figure 1: A comparison of contract specifications between the standard currency futures contracts and their corresponding E-micro contracts

Three of the contracts are fully fungible with the CME group's full-sized forex futures contracts: EUR/USD, GBP/USD and AUD/USD. Margins and exchange fees are scaled down proportionately to the full-size contract. For example, if the full-size EUR/USD contract had a $4,050 margin requirement per contract, the E-micro EUR/USD contract would have one-10th the margin requirement, or in this example, $405 per contract. Regularly updated margin requirements for the E-micro contracts can be found by contacting the CME. (For related reading on margin, take a look at Forex Leverage: A Double-Edged Sword.)

E-micro Forex Futures Contract Specifications
The CME offers six currency pairs as E-micro forex futures contracts as seen in Figure 2: EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF and USD/CAD. Like other futures products, each contract has specifications regarding the size of the contract, the minimum price increment and the corresponding tick value. These specifications allow traders to understand the dynamics of each contract and determine the potential profit or loss for particular price movements.

forex, fx
Figure 2: The contract specifications for each of the six E-micro forex futures contracts.

The EUR/USD contract, for example, has a minimum tick size of 0.0001; each price tick up or down will result in a corresponding US$1.25 increase or decrease in value. If a long trade is entered at $1.3957, for instance, and price moves to $1.3967, the 10-tick price increase would be worth 10 X $1.25, or $12.50.

Figure 2 also shows each contract's ticker symbol. As futures contracts, each symbol must also be followed by the contract month and year to define the particular contract. The E-micro forex futures contracts trade with set expiration dates on a quarterly cycle, with contract months falling in March (designated as "H"), June ("M"), September ("U") and December ("Z"). The EUR/USD contract for December 2010, then, would be referred to as M6EZ10:

M6E Z 10
Contract Month Year

Safety and Security of the E-micros
As futures contracts, E-micro products are part of an exchange-traded, regulated market. The E-micros market is regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). Unlike the cash forex market, where different participants see different prices (depending on the broker), pricing is centralized and all market participants have access to the same wholesale bid and ask prices with E-micro forex futures contracts. (Forex futures operate differently from traditional futures. To better understand forex futures, read Getting Started In Foreign Exchange Futures.)

CME Clearing acts as the counterparty to every trade. In other words, CME Clearing is the buyer to each seller, and the seller to each buyer, virtually eliminating any counterparty credit risk. All trades are matched and settled by CME Clearing. In addition, customer funds are kept completely segregated.

The Bottom Line
When the CME launched the E-micro forex futures contracts in 2009, six products were introduced. At one-tenth the size of the full-size contracts, the E-micros offer traders the opportunity to trade forex in a regulated marketplace and with reduced margin and risk exposure. In addition, for traders interested in the full-size contracts, the E-micros provide a practical introduction to their big brothers. (Learn how to enhance your forex trading system with a strategic schedule. Read How To Set A Forex Trading Schedule.)

Related Articles
  1. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  2. Investing

    3 Healthy Financial Habits for 2016

    ”Winning” investors don't just set it and forget it. They consistently take steps to adapt their investment plan in the face of changing markets.
  3. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  4. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  5. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  6. Retirement

    Smart Ways to Tap Your Retirement Portfolio

    A rundown of strategies, from what to liquidate first to how much to withdraw, along with their tax consquences.
  7. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  8. Budgeting

    Is Living in Europe Cheaper than in America?

    Learn how living in Europe has financial advantages over living in the United States. Discover the benefits to take advantage of when it makes financial sense.
  9. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  10. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  3. Does mutual fund manager tenure matter?

    Mutual fund investors have numerous items to consider when selecting a fund, including investment style, sector focus, operating ... Read Full Answer >>
  4. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  5. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
  6. What licenses does a hedge fund manager need to have?

    A hedge fund manager does not necessarily need any specific license to operate a fund, but depending on the type of investments ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center