Futures trading has been an area of high interest for all market speculators. The capital and risk profile has been scaring people away. Pushing them into lower capital requirement markets such as Forex. However now with the introduction of the Micro E-mini futures contracts. Retail traders can enter the futures market without having to risk a lot or need a lot of capital for margin. Making the futures market accessible to all market speculators.
The new introduction of the E-mini Micro equity contract has proven to be the CME’s most successful product launch. Appealing to all traders across the board with no discrepancies. It allows anyone to take advantage of the futures market. Enjoy liquidity, around the clock trading, large potential for gains, preferential tax treatment, low margin and easily shorting the markets. The E-mini Micro is a futures equity contract that is 10% of the size of a regular E-mini contract. This limits exposure in the market, as well as the trading margin required by brokers. In the following blog, the logistics of the Micro will be discussed and a detailed outline of how you and any other retail trader can take advantage of the new product.
Micro Equity Futures-Introduction
The Micro futures contract was recently introduced by the CME, markets and traders alike quickly accepted the contract and flooded liquidity into it. The launch was more than successful on May 5th as the futures market opened for evening trading pouring in over 2.6 million contracts traded in the first week. While Globex volume seems to be averaging at about 200-250K on the S&P 500 E-mini micro contract (vs 1.6 million contracts traded on the ES E-mini). This provides traders with a lot of liquidity to actively trade the market.
Take a look at the image below for the combined Microvolume day by day in the first week of trading, there has been a steady move higher and will continue to shift as such. We do expect about 15-20% of the volume of the E-mini contracts, but that is more than enough to provide retail traders, and even institutional traders with liquidity to enter the futures market.
The Micro futures contracts are substantially smaller, being 1/10th of the size of an E-mini contract. That provides traders with accessibility to the futures market. For example, as per the chart below, the ES Micro contract is 5 x S&P 500 index, whereas the E-mini is 50 x S&P 500 contract. That means that the Micro contract is worth $5 a point and $1.25 a tick per contract. While the E-mini for the S&P 500 is worth $50 a point per contract, $12.50 a tick. Hence, the Micro is 1/10th of the size. Alternatively, Nasdaq, Dow and Russell 2000 Mini’s are worth $5.00 a tick with different denominations. The Micro, they are all worth $0.50 a tick.
Furthermore, since the Micros are so much smaller than the E-minis, the margin is low. Trading 1 S&P 500 E-mini contract grants you access to 50 x S&P 500. If the S&P 500 is trading at 2900, then the contract represents 50 x 2,900, which is $145,000 worth of S&P 500. Alternatively, with the Micro contract, that is worth 5 x S&P 500 or $14,500 worth of S&P 500. The 10% denomination of the micro allows for less required margin to trade the contract.
Depending on the broker, the margin will be very reasonable. If we use AMP Futures brokerage as an example, they offer ES E-mini futures trading for $400 margin per contract. Meaning traders can trade 1 ES E-mini contract with just $400 in their account. Now it would be wise to have some room for error and so on. In such would require an account of approximately $1,500-$2,000 to get into the futures market.
Keeping in mind that with E-mini’s, points on equity markets are worth $50 in the ES (S&P 500 futures) and RTY (Russell 2000 futures) while $20 in NQ (Nasdaq futures) and YM (Dow Jones futures). This can hurt a $2,000 a lot if you are just getting started, learning $50 at a time, if not more on some stops, is costly. Then the CME introduced Micro equities futures contract.
The Micro contract allows traders to enter the futures market with as little as $100. With a margin of $40-$50 required by AMP based on the ES Micro futures or the NQ Micro futures (respectively). This accessibility to the futures market may eliminate or at least cut down the retail presence in Forex. As we will discuss below.
Micro Equity Futures- Leverage, uses and replacing Forex
The introduction of Micro E-mini equity futures allows trades to enter the futures market with little capital requirement and use substantial leverage. Attractive isn’t it? So much so that it could edge out the retail participation in Forex, for the most part.
No more will the large accounts with a higher tolerance for risk be the only market participants in futures. Now the retail crowd with lower risk tolerance can enter, but will have to be educated in the futures market!
Forex has been a strong attractant for retail traders to enter markets, in the past. That could all change with Micro futures! Forex is usually a starting point for retail traders, as there is high leverage with most brokers and the possibility of making decent money with a small account. There are ads all over the internet of traders starting with $100 account in Forex and turning those accounts into thousands.
The reality of this is that they are either taking on a lot of risk or they are not actually making these gains! The idea of Forex trading with a small account is that you can use a smaller account to access larger buying power in the market thanks to leverage. There are some Forex brokers that allow 30x leverage on certain pairs. With a 30:1 leverage ratio Forex traders have a 3.33% margin requirement (30/1) meaning with just a $200 account you can access $6000 of USD. ($200/0.03333). With that leverage comes RISK.
Forex has risk associate it with, just like any asset class. Additionally, Forex is an unregulated market that is largely affected by the big fish and news events. The unregulated aspect and news effect widens Forex spreads which cane burn accounts with large leverage! What we call slippage in the futures market where the tight spread widens is not much of a rarity in Forex.
With the introduction of the Micro contracts, a regulated futures market enables smaller account traders to comfortably trade the market with less spread risk. News events affect the futures market and there is volatility however the spread and slippage is to a lesser extent! Not to mention, volume transparency.
Forex is unregulated and therefore volume is only available from broker to broker, not as a whole. Whereas futures volume is available to all through any broker through CME data. Enabling order flow trading with E-mini Micros. Using a small account! Say goodbye to retail Forex trading.
Micro Equity Futures- Practicing with Limited Risk, How Retailers can Become Full-Time Traders
Are you scared of putting on risk? Are you trapped in demo trading? Worried that you may blow a large account, or that you need a large account to start? If you answered yes to any of these questions, then we’ve got a simple solution for you…
Micro equity futures can let traders seamlessly transition from practicing in demo to live, dipping their toes in the reality of trading which is accepting the risk and making that leap to profitability.
First you do not need a large account to get into the futures market, usually, we would recommend starting with at least $2,500 to get a taste of 1 lot trading in the futures market. Now you can access Micros with as little as $200.
Second, if you are trigger shy because you do not want to take on risk with the fear of losing a trade, you can take a lot less risk. One-tenth of the risk to be exact! Each lot is 1/10th of the risk and reward of a mini contract. This lets traders experience having skin in the game without paying a lot to learn lessons.
Third, no need to slave away in demo anymore. Demo is great to learn and test out new strategies, and there is no need to stay in there for too long, is there? The reality is you cannot make real money in demo! With the new Micro contracts, your demo journey can be cut short. A month in demo may be all you need, after a good trading education. One that TRADEPRO Academy can offer. Then getting your skin in the game and learning how to trade with real money can be made less stressful with Micro contracts. Micro contracts can help traders with new strategies and scaling contract size as well. Which leads us into the last step.
Take a look at the image below, its a side by side view of the S&P 500 Mini futures and the S&P 500 Micro Futures. Just look how similar they are! Have to tell the difference, isn’t it? The main difference other than a slight tick by tick difference is… The E-mini is worth $12.50 a tick per contract, while the Micro is worth $1.25 a tick per contract. So which is which?
Hint: Look at the top left corner of each chart for the symbol.
Micro Equity Futures-Trading and Strategies
There are so many trading strategies to implement when trading futures. The pullback, the breakout, the fade etc. The simplest way to put it, trade the micro as you would the E-mini. Depending on the equity market you can trade the Micro based on the E-mini chart and order flow because there is no price difference. The reason why we recommend you that, especially for NQ, RTY and YM Micro futures is that, the ladder can be thin and order flow may not resonate on those lower liquidity markets.
Alternatively, the ES futures market is very liquid and the ES Micro futures have a lot of liquidity on the DOM. This allows ES Micro traders to trade directly off the Micro charts and DOM with ease. The reasoning behind trading the Micro contracts off the Micro DOM and using E-mini charts is simple. The Micro contracts are based off E-mini order flow and price action.
Below is a side by side comparison of the ES E-Mini DOM and the Micro DOM, which is which?
This time it’s a little harder to tell but there are a few telltale signs.
- The DOM on the left has some slippage. Meaning slightly less liquidity.
- The average inventory on the DOMs. The DOM on the left has less average volume per tick. Meaning the DOM on the left belongs to the MICRO!
The Pullback Strategy ES E-mini Micro
The pullback is the highest probability trade that we preach at TRADEPRO Academy, here is a sneak peek to the premise of the pullback: Easiest Futures Trading Strategy
We will be outlining the pullback using ES Micros on all things Micro! From DOM to Footprint.
The chart below explains it all! Kidding we’ll break out the process based on the numbers beside each area.
- First, identify the trend. This is a clear bear trend with lower lows and lower highs. The pullback trade in this scenario is short after a break of a support level and a pullback.
- The support identified is the Open, VWAP and POC level on the ES Micro futures. A double top has formed around this area so we’ve zeroed in on the potential area. This is near the 2833-34 area where the previous top had formed. This is the creation of a double top. A high probability trade.
- Volume is confirmation to the trend! Volume leads price. On the moves, higher volume was low, while on each drop came with strong volume! The trend is confirmed to the downside.
- Moving from market structure down to order flow. We look for offers to hold resistance and high volume nodes at the top of the structure. This is a sign of strong selling.
- This area indicates that offers, or sell interest are moving lower as price moves lower. This put pressure on the bids sitting below with the possibility of getting filled.
- This concludes the flush lower, sellers take over and the pullback trade is complete. Entering into the high volume node at 2833 to 2833.25 and taking the position out just below the open at 2830.25 is a three-point move.
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The information contained in this postis solely for educational purposes, and does not constitute investment advice.The risk of trading in securities markets can be substantial.You should carefully considerif engaging in such activity is suitable to your own financial situation.TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
