The debut of the E-mini S&P 500 contract 14 years ago gave retail traders their first real chance to trade equity futures. Now the retail market is adopting the next generation of retail contracts: micro-futures contracts.The debut of the E-mini S&P 500 contract 14 years ago gave retail traders their first real chance to trade equity futures. Now the retail market is adopting the next generation of retail contracts: micro-futures contracts.
Sometimes you have to start small. Many retail brokers in the industry credit the original E-mini contract, E-mini S&P 500 futures, with opening the door to futures for individual investors. The 1997 launch of the contract was well timed, with the rise of electronic trading and the explosion of self-directed trading and investing.
Today, with commodities and currencies garnering strong interest among individual investors, CME Group's E-micro forex and E-micro gold futures contracts also appear opportune. Several factors, from global economic uncertainty to demand for commodities, have provided a strong backdrop for E-mini and E-micro products among retail traders.
"All these issues are coming together to play in the commodity arena," says Jim Gombas, director of Lind Plus, Lind-Waldock's broker-assisted division. "It is front-page headline news and that makes people aware of what impacts prices. They think of how to benefit and how to participate. There are so many ways to be engaged. As you learn about one market you see how it's tied to another."
The E-mini S&P futures also paved the way for many other E-mini contracts and allowed individuals to trade on lower margins with a better handle on leverage. The recent introduction of E-micro forex - which includes euro-U.S. dollar, U.S. dollar-yen, British pound-U.S. dollar, Australian dollar-U.S. dollar, Canadian dollar-U.S. dollar and Swiss franc-U.S. dollar - as well as the E-micro gold contracts, has given investors more efficient access to these markets.
Not every futures contract has an E-mini counterpart, but a successful E-mini and E-micro contract offers electronic access via CME Group's Globex electronic trading platform, deep liquidity and flexibility, retail brokerage executives say.
"You can dollar-cost average into a position, accrue contracts at different prices and times in a way that might not be available with larger contracts," Gombas says. "It allows you to lighten up but maintain some exposure in your core position. To do it incrementally is appealing."
Risk and buying power Donna Heidkamp, president of RJO Futures, the private client division for R.J. O'Brien, says E-minis can help manage risks in a more capital-efficient manner.
"When using strategies that combine both options on the big contracts and mini futures, traders can position themselves to earn money in both directions, similar to an option straddle or strangle, without paying as much up front," Heidkamp says.
The E-micro contracts are sized at one-tenth the size of the standard forex futures contract, and the E-minis are one-fifth the size of standard-sized contracts, such as the S&P 500 futures. Those sizes mean retail traders can achieve more access to selected markets and more buying power, Heidkamp says. Take gold for example. In 2000, the precious metal was trading around $250 per ounce. With demand for gold rising, from Asian consumers to investors worried about inflation, it topped $1,300 an ounce.
"I know, with the significant increase in prices and without the E-minis, many retail investors would be priced out of the market," Heidkamp says.
Many retail futures traders come from the equities world and the transparency of futures is a big draw, says Daren Markisic, head of retail futures, MF Global Australia Ltd.
"John Smith, who has a $20,000 funded futures account, trades on the same market and has the same opportunities and risks as a major global hedge fund," Markisic points out.
Markisic agrees that even though the E-mini S&P is a fraction of the full-sized contract, it has grown out of reach for some - meaning there is an opportunity for individuals to take advantage of E-micros. Markisic says that the micro-sized contracts allow customers to post smaller margins, which in turn allows them to spread out and diversify their investments.
"After all, that is what the professionals do," Markisic says. "They can easily achieve this due to the amount of capital they have at play."