Are Micro E-Mini Futures 'The Next Big Thing'?

Hedging Your Portfolio for Less

As an investor, you can invest in any type of security. This includes stocks, bonds, commodities, currencies, real estate, and even stock market indexes, which provide a measure of the stock market. Traders can use them to get an idea of how investors are feeling and how the economy is faring. But just how do you trade an index? Easy: By purchasing index futures.

Index futures are financial contracts that obligate traders to buy or sell a financial index at a set price by a certain date. Basically, you buy or sell the index today and agree to settle the contract at an agreed-upon price at a later date in the future. Traders often use these contracts to hedge their positions or to speculate against changes in the underlying index.

There are several exchanges that offer investors index futures products. The most notable is the E-mini family of contracts. In this article, we focus on the Micro E-mini contracts and give you all the basic details to help you start trading.

Key Takeaways

  • Index futures obligate traders to buy or sell a financial index at a set price by a certain date.
  • Micro E-mini contracts allow investors to trade index futures.
  • Options include contracts for the S&P 500, Dow 30, Russell 3000, the Nasdaq 100, and others.
  • These contracts are priced at 1/10 the value of an E-mini contract, which allows a greater pool of investors to take part.
  • The majority of these futures contracts expire quarterly on the third Friday of March, June, September, and December.

What Are Micro E-Mini Futures?

The Chicago Mercantil Exchange (CME) launched Micro E-mini contracts for four major indexes on May 6, 2019. These contracts allow market participants to gain exposure to price fluctuations in a variety of indexes, such as the S&P 500, Russell 2000, Dow Jones 30, and Nasdaq 100 at a much lower cost than the existing E-mini futures. 

Depending on which broker you use, you can take a long or short position on markets like the S&P 500 and Nasdaq 100 with as little as $25 of day-trading margin per contract, offering an effective way to hedge your overall portfolio.

These contracts were extremely popular right from the start. The Micro E-mini S&P 500 futures hit a trading volume of almost 417,000 contracts traded on June 3, 2019. The volume on these contracts tends to be a quarter of the trading volume of their E-mini counterparts. The contracts trade from Sunday to Friday between 6 p.m. and 5 p.m. ET for almost 24 hours a day.

Micro E-Mini Futures vs. E-Mini Futures

As noted above, Micro E-minis were introduced to the market in 2019—more than 20 years after the investors were introduced to E-minis and 37 years after the CME launched the very first standard-sized S&P 500 index futures contract.

The inaugural standard index futures contract was launched in 1982. It was meant for institutional investors because of its sheer size remaining out of reach of the average retail investor: $250 times the value of the index. That means if the S&P 500 hit 2,500, the market value of a full-sized futures contract was 2,500 x $250, or $625,000.

E-mini contracts were launched in 1997 when the values of the major indexes became too large for the average trader. They are priced at 1/5 of the size of a standard contract (i.e., $50 times the value of the S&P 500). This allowed many types of investors beyond just institutional ones to access these alternative investments.

Micro E-mini contracts, which opened up avenues for even smaller investors, were introduced to the market at 1/10 the size of E-mini contracts.

The CME delisted the standard-sized S&P 500 index futures and options contracts in September 2021.

How Do Micro E-Mini Futures Work?

Micro E-mini contracts allow investors to hedge their positions or speculate on movements of the underlying index. For instance:

  • S&P 500 index futures are designed to manage exposure to the 500 U.S. large-cap stocks tracked by the S&P 500 index. 
  • The Micro E-mini Russell 2000 index futures offer exposure to the 2,000 small-cap stocks in the Russell 3000 universe of stocks.
  • You get exposure to the 30 bluechip stocks in the Dow Jones Industrial Average (DJIA) with the Micro E-mini Dow Jones Industrial Average futures
  • The 100 leading non-financial U.S. large-cap stocks in the Nasdaq 100 can be accessed through an investment in Micro E-mini Nasdaq 100 futures.

As noted above, Micro E-minis are priced such that even the smallest investor can access them. They are 1/10 the size of the E-mini and 1/50 the size of the standard- or full-sized contract.

  • The Micro E-mini for the S&P 500 and the Russell 2000 is $5 times the index value
  • The Micro E-mini contract for the Nasdaq 100 index is $2 times the index value
  • The Micro E-mini contract for the Dow Jones 30 is $0.50 times the index value

Micro E-mini futures are listed on the customary U.S. Equity Index futures cycle with five concurrent futures that expire against the opening index value on the third Friday of March, June, September, and December. The Dow Micro E-mini contract is an exception as it lists four months.

Below is a partial list of brokers that have enabled micro e-mini trading.

Partial List of Brokers Who Have Enabled Micro E-mini Futures Contracts
Broker Name Website Commission per Contract Our Review
E*TRADE $1.50 E*TRADE Review
Interactive Brokers $0.32-$0.47, depending on monthly volume Interactive Brokers Review
Ninja Trader $0.09-$0.59, depending on platform license subscription Ninja Trader Review
Tastyworks $0.85 Tastyworks Review
TD Ameritrade $0.65 per contract TD Ameritrade Review 
TradeStation  $0.50 per contract TradeStation Review 

Examples of Micro E-Mini Futures

As noted above, the S&P 500 E-minis are priced at $50 times the value of the index when the contract expires. Since the Micro E-mini is 1/10 that value, it's priced at just $5 times the value. 

So if the S&P 500 index is 2,950, the Micro E-mini value is $14,750. That's compared to the E-mini which would be priced at $147,500.

How Do Micro E-mini Contracts Work?

Index futures contracts give investors the obligation to buy or sell the underlying index at a certain price by an agreed-upon date. Micro E-minis are futures contracts, which work the same way as E-mini and standard futures contracts do. They allow investors to take a position or speculate on the movement of underlying indexes, such as the S&P 500, the Dow 30, the Nasdaq 100, and the Russell 3000. Contracts must be purchased through a brokerage firm.

How Do I Invest in Micro E-mini Futures?

In order to begin investing in Micro E-mini futures, consider the investing strategy and position you wish to take. Then open an account with a brokerage firm and make your trade. Monitor your account to see how the underlying index and, therefore, your investment is performing.

What's the Difference Between an E-mini and a Micro E-mini Futures Contract?

Both the E-mini and Micro E-mini are futures contracts which obligate the holder to buy or sell an index at a set price by a predetermined date. The E-mini is typically 1/5 of a standard contract and the Micro E-mini is 1/10 of the E-mini. So the S&P 500 standard contract (which is no longer listed) was $250 times the value of the S&P 500 and the E-mini is $50 times the S&P 500's value. The Micro E-mini, therefore, is $5 times the index's value.

Article Sources
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