Micro E-mini S&P 500 Trading Strategy – Backtest, Futures Example

With the S&P 500 index rising significantly over the years, the worth of the popular E-mini S&P 500 futures became out of reach to retail traders with small accounts. This prompted CME to create the Micro E-mini S&P 500 index futures contract, to make the market accessible to small-cap retail traders. But what is the Micro E-mini S&P 500 Index futures strategy?

The micro E-mini S&P 500 Index futures strategy refers to the methodology or technique you can use to profitably trade the micro E-mini S&P 500 futures. Micro E-mini futures are 1/10^th the size of their E-mini counterparts. They are traded electronically on the CME Globex platform, and settlement on expiry is by cash. The contract allows you to take positions on the direction of the S&P 500 index, either for speculation or hedging purposes. Your strategy can include technical and fundamental analyses for market timing, as well as risk management techniques.

In this post, we answer some questions about the Micro E-mini S&P 500 Index futures strategy. To help your trading we additionally make a backtest with strict trading rules.

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Table of contents:

What are Micro E-mini S&P 500 Index futures?

The micro E-mini S&P 500 Index futures are the smaller versions of the popular E-mini S&P 500 futures contracts, checking in at just 1/10th the size. Launched in 2019 by the CME Group, the contract trades on the CME Globex electronic platform and is financially settled.

The underlying asset is still the S&P 500 Index, but the contract size is small to allow retail traders with small account sizes to participate in the S&P 500 futures market. At just $5 times the index’s value, the micro contract size offers traders greater flexibility, allowing them to be more precise in risk management.

With micro contracts, poorly capitalized retail traders can take a position in the S&P 500 futures to speculate on the direction of the index, diversify their portfolio, or hedge their exposure in the equity market.

What is a Micro E-mini S&P 500 Index futures strategy?

A micro E-mini S&P 500 Index futures strategy is a method or technique you can use for trading micro contracts of the S&P 500 e-mini futures. This strategy is employed by traders with small trading capital and would typically involve technical analysis of the S&P 500 index to time the market, determine your optimal position size, and create your risk management parameters.

If you intend to trade micro E-mini S&P 500 futures profitably, having a solid trading strategy with precise entry and exit signals and risk management techniques is a must, regardless of whether you are trading to speculate on the direction of the index, diversify your portfolio, or hedge your exposure in the US equity market.

Micro E-mini S&P 500 Index futures strategy backtest

The trading strategy we are about to backtest is behind a paywall. It’s strategy #2 on ourtrading strategies for sale(SPY) andfutures strategies for sale(@ES). Please note that the backtest is on the E-Mini contract, not the Micro E-Mini. The reason is simple: The Micro contract is relatively new and doesn’t have a long history. The results should not differ much on this strategy, but you need to verify yourself.

Trading Rules

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The trading strategy was published years ago, but put it behind a paywall in October 2021, thus it has many years of out-of-sample testing.

What is the seasonality of Micro E-mini S&P 500 Index futures?

In trading, seasonality is a concept that describes the tendency of an asset’s price to move in a fairly predictable pattern during certain times of the year, such as months or seasons (winter, spring, summer, and fall) of the year.

Historically, the S&P 500 futures tend to perform better in winter and spring than during the summer months, as you can see in the chart below:

What moves the Micro E-mini S&P 500 Index — What affects the Micro E-mini S&P 500 Index the most?

Any factor that affects the S&P 500 index would affect the micro E-mini S&P 500 Index futures, and these are some of those factors:

The movement of the component stocks: The S&P 500 index is a market-capitalization-weighted index, so the index movement is more dependent on the movement of higher-cap stocks than on the lower-cap stocks.
Interest rate changes: Changes in interest rates can affect stock prices and move the S&P 500 futures.
Economic news: Macroeconomic news reports, such as GDP growth rates, manufacturing index, and so on, affect the movement of the S&P 500 futures.
Value of the U.S. dollars: Most times, the value of the S&P 500 index rises when the USD is depreciating and falls when the USD is appreciating.

How are Micro E-mini S&P 500 Index futures traded?

The micro E-mini S&P 500 Index futures contracts are traded on the CME Globex electronic platform, which can be accessed electronically from anywhere around the world. The contract trades from Sunday 6:00 p.m. to Friday – 5:00 p.m. ET (5:00 p.m. – 4:00 p.m. CT) with a daily maintenance period from5:00 p.m. – 6:00 p.m. ET (4:00 p.m. – 5:00 p.m. CT).

There are quarterly contracts (Mar, Jun, Sep, and Dec) listed for 5 consecutive quarters. One contract unit is equivalent to the current value of the index multiplied by $5. The price quotation is in USD and cents per index point. The contract is financially settled, and trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month.

How do you start trading Micro E-mini S&P 500 Index futures?

You need a futures broker that would grant you access to the CME exchanges where the micro E-mini S&P 500 Index futures contracts are traded and also helps clear your trades. So, to start trading this contract, you have to register with a futures broker and fund your account. Since it is a leveraged contract, you need not have the full dollar worth of the contract before you can trade it — you can trade with a little more than the required margin ($1,060).

You can also trade the CFD of micro E-mini S&P 500 index futures contract, which is offered by some online forex brokers, like IG. With a CFD contract, you are in an agreement with the broker to exchange the price difference between the opening and closing of a trade, and you can trade without worrying about the futures contract expiry.

What is the Micro E-mini S&P 500 Index trading at?

As of December 9, 2022, the Micro E-mini S&P 500 futures were trading at $3959.50. See the chart here on the CME platform chart. The chart was gotten from TradingView.

Note that the price changes from time to time, so what is quoted here may not be the price it is trading now you are reading this post. You can click on any of the links to get the real-time price on the CME platform or directly from TradingView.

What’s Micro E-mini S&P 500 Index futures hour?

The Micro E-mini S&P 500 futures trade on the CME Globex electronic platform from Sundays to Fridays, from 6:00 p.m. – 5:00 p.m. ET (5:00 pm – 4:00 pm CT) the next day. There is a one-hour break before the start of the next trading day (5:00 p.m. – 6:00 p.m. ET) from Monday to Thursday for maintenance.

For CME ClearPort, the trading schedule is: Sunday 6:00 p.m. – Friday 6:45 p.m. ET (Sun 5:00 – Fri 5:45 p.m. CT) with no reporting Monday – Thursday6:45 p.m. – 7:00 p.m. ET (5:45 p.m. – 6:00 p.m. CT).

Where can I find trading charts?

You can find the chart on any trading platform that provides chart services. If your platform does provide charts, you can use TradingView, but to connect TradingView to your broker, you must subscribe to its Pro services. From the CME platform, you can also access the TradingView chart.

You can also use Yahoo Finance, which offers free chart services, or you can subscribe to a paid trading chart platform like MultiCharts.

What are the trading symbols for Micro E-mini S&P 500 Index futures?

The trading symbol for the Micro E-mini S&P 500 Index futures contract is MES. The product codes for the various sections are as follows:

CME Globex: MES
CME ClearPort: MES
Clearing: MES

What is the specification for the Micro E-mini S&P 500 Index futures contract?

One contract unit of the Micro E-mini S&P 500 Index futures (MES) is equivalent to the index’s value multiplied by $5 (Index’s value X $5). The price quotation is in U.S. dollars and cents per index point, and the minimum price fluctuation is 0.25 index point, which is equivalent to $1.25.

The contracts come in quarterly cycles of March, June, September, and December, with contracts listed for 5 consecutive quarters. Contracts are financially settled, and trading terminates at 9:30 a.m. ET on the 3rd Friday of the contract month.

Why should you start trading Micro E-mini S&P 500 Index futures?

The Micro E-mini S&P 500 Index futures offers you access to the highly liquid and popular S&P 500 e-min futures at a much lower contract size, with the benefits of trading with a small account and more flexibility in position sizing and risk management. Generally, here are some of the reasons why you may want to trade this contract as a retail trader/investor:

You can use it to hedge your position in the equity market — just as institutional investors do with the bigger contract sizes
You can use it to diversify your investment portfolio
As a trader, you can use it to speculate on the direction of the S&P 500 index and profit from the price fluctuations — due to the leverage in futures trading, this offers a better profit potential than trading S&P 500 ETFs on the equity market.

What is the contract size?

One contract unit of the Micro E-mini S&P 500 Index futures is equivalent to $5 x the index’s current value. The dollar worth of the contract, therefore, depends on the current quote of the index.

For instance, given the current quote of 3959.50, as of writing, the USD worth of one contract unit of the Micro E-mini S&P 500 futures (MES) would be $5 x 3959.50 = $19,797.50.

What is the tick size?

The tick size of one contract of the Micro E-mini S&P 500 Index futures is $1.250.

What is the minimum price fluctuation for Micro E-mini S&P 500 Index futures?

The minimum price fluctuation for the Micro E-mini S&P 500 Index futures is 0.25 index points.

Are there any ETFs?

Yes, there are many ETFs that track the S&P 500 futures market. These are some of them:

SPDR S&P 500 ETF (SPY)
iShares Core S&P 500 ETF (IVV)
Vanguard S&P 500 ETF (VOO)

What factors affect Micro E-mini S&P 500 Index prices?

The factors that affect the S&P 500 Index include:

The movement of the highly weighted component stocks of the index, such as Apple, Microsoft, and Amazon
Macroeconomic reports, such as CPI, GDP growth rate, interest rates, and so on
Interest rate changes
The state of the economy
Sociopolitical events, such as elections

What is the all-time high for Micro E-mini S&P 500 Index futures?

Based on the TradingView chart for the Micro E-mini S&P 500 Index futures, the all-time high of this contract is 4808.25, which it reached in January 2022.

What are the biggest risks in trading Micro E-mini S&P 500 Index futures?

The biggest risks come from adverse price movement, as the contract is leveraged despite its small size. When trading with leverage, the losses are calculated using the actual value of the contract size traded, not the margin deposited. So, if you trade with a 20x leverage, a 1% negative movement would lead to a 20% loss, and a 5% adverse movement would wipe out your account.

What is the settlement method?

Financially settled

What is the settlement procedure?

On expiry, the contract is settled by cash. Final settlement is calculated based on the special opening quotes of the index on the day of final settlement which is normally the third Friday of the contract month.

What is the block minimum for Micro E-mini S&P 500 Index futures?

There is no block trade eligibility for this contract.

What is the difference between Micro E-mini S&P 500 Index futures and Forex for the Japanese currency?

The Micro E-mini S&P 500 Index futures contracts have fixed expiration dates, while its CFDs can be traded indefinitely without any concern for contract expiry.

Which forex pair is the same as Micro E-mini S&P 500 Index futures

Micro E-mini S&P 500 Index CFD

What are some important dates for this market?

Some of the important dates for the Micro E-mini S&P 500 Index futures market include:

1957 when the S&P 500 Index was created
1982 when the S&P 500 futures were introduced
1997 when the E-mini contract debuted on the CME platform
May 2019 when the Micro E-mini contract debuted on the CME Globex platform

What is the highest Micro E-mini S&P 500 Index has ever been — its all-time high?

Based on the TradingView chart for Micro E-mini S&P 500 futures, the highest level the contract has ever reached was 4808.25, which happened in January 2022.

What is the lowest Micro E-mini S&P 500 Index has ever been — its all-time low?

The Micro E-min S&P 500 Index futures were created in 2019, and from that timeframe, the lowest the contract ever traded was 2174.00 in March 2020. However, based on the TradingView chart for E-mini S&P 500 futures, the S&P 500 index futures had reached a low of 665.75 in March 2009.

Conclusion

As a retail trader or investor with a small capital, you can use the Micro to diversify your portfolio, speculate on the direction of the S&P 500 index, or even hedge your exposure in the equity market.

FAQ:

Can you provide insights into a backtested Micro E-mini S&P 500 Index futures strategy?

While the specific details of the strategy are behind a paywall, it’s based on mean reversion principles. The backtest, conducted on the E-mini contract, shows performance metrics without risk management parameters.

What is the seasonality of Micro E-mini S&P 500 Index futures?

Seasonality in trading refers to the predictable pattern of an asset’s price movement during certain times. Historically, Micro E-mini S&P 500 Index futures tend to perform better in winter and spring than during the summer months.

How do I start trading Micro E-mini S&P 500 Index futures?

To start trading, you need to open an account with a futures broker, who will grant you access to the CME exchanges. Funding your account is necessary, and due to the leverage, you can trade with a margin that is higher than the contract’s full value.

Micro E-mini S&P 500 Trading Strategy – Backtest, Futures Example - Quantified Strategies (2024)