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Shifting from automotive technician to full-time day-trader could be considered a rather dramatic career U-turn. Mike Swartz said he managed to do just that.

Swartz, of Bradenton, Florida, spent many years tinkering with car engines by day while trading mostly at night, hoping to eventually make the leap to trading full-time. He said his trading efforts were going fine, then took a big leap forward after the launch of the first CME Micro E-mini contracts in 2019.

“Once Micros came along, life as a trader got both simpler and more interesting, and more suited for my trading goals,” said Swartz, who also runs EpitomE Trading, an education service. “It opened a new world an individual trader like me had never had access to before.”

Swartz said Micros enable “a lot more flexibility” with his trading strategy and lower barriers to entry to the futures markets for individual traders, enabling them to take positions in major benchmarks like Nasdaq-100 or WTI crude oil without risking large amounts of capital.

“Before Micros were launched, if you weren’t well capitalized, it was hard to take a position that might allow you to catch bigger moves in the market,” Swartz said. “But with Micros, you can set yourself up to potentially capture those opportunities. I really believe Micros are a game-changer for retail traders.”

Swartz is one example of numerous individual traders who’ve embraced the “smaller bite” features of Micros in recent years and helped fuel the fastest-growing contracts CME Group has ever launched. In August, a little over two years after the first Micro E-minis were launched, over 1 billion Micro futures and options contracts had been traded to date.

Micros ”Fully Embraced” by Traders

Micro E-mini contracts based on equity benchmarks like the S&P 500 and Nasdaq-100 indices are one-tenth the size of CME’s traditional E-mini futures, launched in 1999. That means margin requirements for the Micros are similarly a fraction of E-minis. As of mid-October, the initial margin requirement for one Micro E-mini S&P 500 futures contract was $1,150, compared to $11,500 for the E-mini S&P 500 contract. The “multiplier” used to determine notional value for the Micro E-mini S&P is $5, also one-tenth the size of the E-mini S&P 500.

Lower costs are a big part of Micros’ appeal, traders and brokers say. For example, if the S&P 500 is trading at 4,400, one Micro E-mini S&P 500 contract (ticker /MES) would be 4,400 x the $5 multiplier, for a notional value of $22,000. By comparison, with the E-mini S&P 500 (ticker /ES), at 4,400 x the $50 multiplier, notional value is $220,000.

Rick Tomsic, CEO of Tradovate, a broker based in Columbus, Ohio, said his customers “fully embraced” Micros, helping drive a nearly four-fold increase in the firm’s trading volume last year.

Micro contracts “have been fantastic for our business,” Tomsic said. “Because traditional index-based futures, like the E-mini S&P 500 futures contract, have grown in value over the years, they’ve become oversized for the retail trader.” The Micro contracts “lend themselves to retail traders. They're using these contracts more actively, which they couldn't do with the larger-sized contracts,” he added.

The most actively traded Micro futures contracts are based on four major U.S. equity benchmarks: the Nasdaq-100, Russell 2000, S&P 500 and Dow Jones Industrial Average. During the first ten months of 2021, those four Micro contracts combined traded an average of 2.06 million contracts a day, up 15% from an average of 1.8 million during the same period in 2020.

That represents 38% of overall equity index ADV at CME Group over that period. Other CME Micro contracts are linked to gold, crude oil, Bitcoin and treasuries and several traditional currencies.

Other CME Micro contracts are linked to gold, crude oil, bitcoin and treasuries as well as several traditional currencies.

Lowering Barriers to Entry

Micros' rapid growth offers one example of accelerating, broader financial and consumer trends, catalyzed in part by the pandemic, where more and more people, many of them younger, embrace so-called self-directed trading, angling for greater access to different kinds of assets. Retail investors accounted for 20 percent or slightly more of overall stock market volume in 2020 and early 2021, up from less than 12 percent in 2018 and 2019, according to Virtu Financial, which cited data collected under the SEC’s Rule 605 requirements.

Walter Sledz, Vice President of Sales at NinjaTrader Brokerage, LLC, said Micros “really lowered the barriers to entry and opened the markets to more people, reshaping the landscape in terms of who was able to participate in futures.”

In futures trading, “we’re starting to see demographics shift younger, and a lot of that correlates in the rise in use of Micro contracts,” Sledz added. “The lower financial commitment has really helped some customers. It’s ideal for people learning how to trade and just getting started in futures. It allows them to scale in and out of positions, with more flexibility.”

The introduction of Micros generated a “significant increase” in NinjaTrader’s trading volume compared to the pre-Micro era. “Micros’ accessibility has not only attracted a substantial number of new customers to our business, but also has enabled increased flexibility for our customers to manage their positions. This has produced much higher overall trading volumes than we had previously seen.”

Micros contracts can be useful for both futures rookies as well as veterans like Terry Biondo, a former floor trader in the S&P 500 index futures pit at the Chicago Mercantile Exchange. Biondo said he's testing some newer automated trading strategies using Micros, partly because of the lower cost versus traditional E-minis. “I like that I can take more ‘heat’ on a trade and not get too concerned over tick value.”

Just the “Tip of the Iceberg”

Micros could also be useful if a trader wants to maintain a position in the market during periods of high volatility, or if there's potential for high volatility, Biondo said.

“If I think the market may break big one night, I may put three or five Micro contracts on,” Biondo said. “You’re taking a shot, but you don’t have to worry all night about taking a big loss. You know you’re not going to get ‘run over’ if you’re using the smaller contracts.”

Biondo sees Micros as part of a broader, technology-driven market evolution characterized by escalating individual interest in trading and investing and growing demand for access to “alternative” assets beyond traditional stocks and bonds.

“We're just seeing the tip of the iceberg,” Biondo said, referring to the retail trader ascendance. “This trend is only going to accelerate. Many people are still working at home, and they want to be part of the markets. Micros definitely make it more affordable to trade futures, and you can learn how futures markets work by trading Micros, without putting large sums at risk.”


 

 

OpenMarkets is an online magazine and blog focused on global markets and economic trends. It combines feature articles, news briefs and videos with contributions from leaders in business, finance and economics in an interactive forum designed to foster conversation around the issues and ideas shaping our industry.

All examples are hypothetical interpretations of situations and are used for explanation purposes only. The views expressed in OpenMarkets articles reflect solely those of their respective authors and not necessarily those of CME Group or its affiliated institutions. OpenMarkets and the information herein should not be considered investment advice or the results of actual market experience. Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures and swaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every trade. BrokerTec Americas LLC (“BAL”) is a registered broker-dealer with the U.S. Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (www.FINRA.org), and is a member of the Securities Investor Protection Corporation (www.SIPC.org). BAL does not provide services to private or retail customers.. In the United Kingdom, BrokerTec Europe Limited is authorised and regulated by the Financial Conduct Authority. CME Amsterdam B.V. is regulated in the Netherlands by the Dutch Authority for the Financial Markets (AFM) (www.AFM.nl). CME Investment Firm B.V. is also incorporated in the Netherlands and regulated by the Dutch Authority for the Financial Markets (AFM), as well as the Central Bank of the Netherlands (DNB).

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