How to Trade Micro E-Mini S&P Futures | A Beginners Guide
If you trade stocks and stock options, there is a good chance you will find your way to futures trading.
Why? Most traders are always looking to gain the additional leverage provided by futures stock indices, and one of the most liquid stock indices is the E-Mini S&P Futures contract.
The launch of the E-Mini S&P was one of the most successful futures contracts by the CME.
However, as time passed and the indices trended higher, the notional value of the contract has gone up as well. The original contract of the E-Mini SP contract is $50 a point, and now that we have the E-Mini S&P breaking the 4,000 level, the notional contracts are worth over $200,000. This is clearly very high for many of the smaller day traders who are trying out the futures market.
Introducing the Micro E-Mini Index Futures Contract
In 2020, the CME launched the E-Mini Micro contracts to meet the demand of smaller traders who may not have the high-risk capital that many of the regular futures contracts require. The new E-Mini Micro contracts are 1/10th of the size of the regular contracts, and each point is $5 and each tick is $1.25
To trade the Micro E-Mini S&P Futures, you simply need two things:
- A futures Broker
- A futures trading platform
Consider trading futures through Optimus Futures, a leading discount broker that has garnered rave reviews from its growing client base and has access to a variety of dedicated futures trading platforms, including downloadable, web-based and mobile.
Their flagship product is Optimus Flow, a platform geared towards traders looking for very fast execution. This is particularly important for day trading scalpers.
Why Trade Futures over Stocks
Futures trading has tremendous advantages over Stocks or Stock Options. First, they carry leverage that you do not have to pay interest on, and you can go both long and short as long as meet your margin requirement.
Also, as opposed to the PDT (Pattern Day Trading) rule that obligates you to have an account of $25K for day trading, you can start a Futures trading account with as low as $500 when you day trade the Micro E-Mini S&P contract.
Remember, futures are likely one of the riskiest instruments in the financial industry, and if you cannot handle leverage and volatility, both psychologically and financially, don’t touch these instruments.
Futures Margins for Micros
This is the amount of money you need to keep in your account if you decide to hold the futures contracts overnight. Most day traders request day trading margins from their brokers, and depending on the broker, it is up to them to decide how flexible they want to be. Some brokers provide $ 500-day trading margins for the E-Mini S&P and $50 for the Micro contracts.
Remember, futures markets are leveraged as it is, and the more contracts you gear up with, the more risk you put your capital at. If you are a beginner, you should start with single contracts.
Micro E-Mini Index Futures Brokers
There certainly isn’t a lack of brokers in the futures industry, but as a beginner, you would be well-served to look for one that is known for its customer service. When shopping around, look beyond commissions and check whether your broker has a streamlined client-onboarding process in terms of explaining the software and the different, sometimes unique mechanics, that apply to the futures market.
Each market and asset class are unique, so you should choose a broker that meets your needs as a trader. From Optimus Futures:
“When we encounter a beginner futures trader, we take extra care to make sure we provide him or her with all the resources we have at our disposal, from the plug and play trading platforms, fast and simple deposit and withdrawal options, a dedicated helpline, and access to support specialists that are available to answer any questions about trading, software and how to get started.”
Futures Trading Platforms and Software for Micro Futures
As a beginner trader, stick with the platforms that are simple to use. Most trading platforms include many bells and whistles that you may not need or may never use. Do not pay for features you simply don’t need when you are starting out. There are plenty of free platforms with simple and excellent order execution to get you started.
Consider Optimus Flow as your beginner platform. While it has all the features more advanced traders look for, such as order flow and volume profile, the platform also has all the necessary tools to ease you into processes, such as a simple order execution module, trading DOM and the ability to trade from the charts. The platform’s unique blend of visual display and trading panels make it easy to get started while ensuring its more advanced features can easily be accessed as you become more comfortable trading futures.
Futures Trading Costs
Futures trading has several costs that you should be aware of. The CME (Chicago Mercantile Exchange) charges a clearing fee for the Micro contract, and your broker charges commissions and clearing (to clear your trades through the Futures Clearing Merchant). You should check whether your broker has some sort of a sliding scale where you can negotiate the cost as you can potentially increase your trading volume.
In Summary
Micro contracts are smaller contracts that attract day traders who look for higher leverage. The trend in retail is to go smaller with fractional shares, options, and now with Micro Futures.
The CME offers 4 micro contracts on the stock indices: S&P, NASDAQ, Dow Jones, and the Russell. You should explore these tools if you are a day trader or seek to engage in such activities.
Disclaimer: There is substantial risk of loss in futures trading. Past performance is not indicative of future results. Trade only with risk capital. Before you engage in any Futures trading activity, please consider that in Futures you can lose more than your initial investment.
