The popularity of the S&P 500 Index futures and the demand for small contract sizes led to the creation of the e-mini and micro e-mini contracts, which can be accessible to all traders. These contracts are electronically traded. The Micro E-mini S&P 500 Index futures offer a lot of advantages and appeal to traders of all experience levels.

S&P-500 Micro E-mini Futures Contract Specifications
Symbol
MES
Exchange
CME
Tick Size
$0.5
Point Value
$5
Contract Size
$5 x index value
Contract Months
Mar, Jun, Sep, Dec
Trading Hours
Sun - Fri 6:00 p.m. - 5:00 p.m.(ET) with trading halt between 4:15 p.m. - 4:30 p.m.
Settlement
Financially settled
Last Trading Day
Third Friday of the contract month

 

Just like other equity index futures, the Micro E-mini S&P 500 Index futures are financially settled, so traders won’t have to worry about the physical delivery of the product at expiration. Being a derivative of a well-known index, the Micro E-mini S&P 500 Index futures is becoming one of the favorite contracts for active futures traders.

What is the S&P 500 Index?

The S&P 500 Index is a market-capitalization-weighted index of the U.S. stock market that includes the 500 largest publicly traded companies in the U.S. market. It is one of the most commonly followed equity indexes and is usually seen as the benchmark of the U.S. stock market.

The index was first calculated by the Standard Statistics Company in 1926 as a 90-stock index and later renamed the Standard and Poor’s Index when Poor’s Publishing merged with Standard Statistics Company to form Standard & Poor’s in 1941. In March 1957, it was expanded to its current 500 number to become the S&P 500 Index. At present, the index is published and maintained by the S&P Dow Jones Indices LLC.

There are many financial products that track the S&P 500 Index, such as index funds, exchange-traded funds, and futures contracts, including the E-mini S&P 500 futures and, recently, the Micro E-mini S&P 500 Index futures.

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

S&P-500 Micro E-mini Futures

S&P-500 Micro E-mini Futures

Futures are financial derivative contracts that obligate the buyer to purchase, and the seller to sell, the underlying asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. In the case of the S&P 500 futures, the underlying asset is the S&P 500 Index, but the contract is financially settled.

Just like the E-mini S&P 500 futures, the Micro E-mini S&P 500 Index futures are a type of the S&P 500 futures which trade only on the Globex electronic trading platform. They are worth 1/50 of the value of the standard S&P 500 futures contract or 1/10 of the value of the E-mini S&P 500 futures. So, the ‘micro’ stands for a fraction of the E-mini contract.

The Micro E-mini S&P 500 Index futures were launched on May 6, 2019, on the Chicago Mercantile Exchange Globex platform to offer small traders exposure to the S&P 500 Index futures at a much lower cost than the already existing e-mini futures contracts. Since its launch, the contract has been quite popular among traders, recording a sizeable trading volume on a daily basis.

Why trade the S&P 500 Index futures

These are the different reasons for trading the Micro E-mini S&P 500 Index futures:

Portfolio diversification: Portfolio diversification is a way investors spread their capital across many stocks to reduce their risk exposure. The Micro E-mini S&P 500 Index futures present a cheap way to invest in an already diversified stock derivative product.

Speculation: The majority of the traders in the futures market are there for speculative reasons, and the Micro E-mini S&P 500 Index futures makes it easy for small investors to get involved in the party.

Hedging: The Micro E-mini S&P 500 index futures are designed to manage exposure to the 500 U.S. large-cap stocks tracked by the S&P 500 index. Thus, retail investors can use it to hedge their exposure in the U.S. stock market.

The benefits of Micro E-mini contracts over the mini and standard contracts

The Micro E-mini S&P 500 Index futures have some benefits when compared with the E-mini and the standard contracts. These are some of them:

Capital efficiency: This is the relationship between invested capital and returns. The maintenance margin required for carrying the Micro E-mini S&P 500 Index futures contract is $660 compared to the $6,600 required for the E-mini S&P 500 Index futures. Similarly, the tick value is much lower.

Ease of diversification: Since the contracts are less capital intensive, traders may have spare cash to trade many different assets at the same time.

Emotional control: For most traders, their emotional control is dependent on the amount at risk. The lower margins and tick size involved in micro contracts helps traders to manage their emotions better, especially when carrying overnight trades.

How does the Micro E-mini S&P 500 Index futures trade?

The Micro E-mini S&P 500 Index futures are offered on the Chicago Mercantile Exchange (CME) Group’s Globex electronic trading platform. The market is open Sunday to Friday, from 6:00 p.m. to 5:00 p.m. Eastern Time (ET) the next day, except on Fridays when the market closes by 5:00 p.m. ET to reopen by 6:00 p.m. on Sunday.

One contract of Micro E-mini S&P 500 Index futures settles for $5 times the S&P 500 Index value. Quoted in USD, the minimum price fluctuation is as follows:

  • Outright: 0.25 index points or $1.25 per contract
  • Calendar Spread: 0.05 index points or $0.25 per contract

There are quarterly contracts (March, June, September, and December) listed for five concurrent quarters. At expiration, the contract is settled with cash. The last trading day is the third Friday of the contract month, and trading terminates at 9:30 a.m. ET.

If you want to start trading this contract, open an account with the exchange through a futures broker and deposit the required margin. But be cautious about futures trading — while you can easily make money, you can lose more than you invested.

Micro E-mini Futures Strategies

S&P500 Micro E-mini Futures Strategy

S&P500 Micro E-mini Futures Strategy

The Micro E-mini futures market is perfect for finding trading strategies. Most of the trading strategies for the biggest E-mini S&P-500 futures contract should work quite well, even though there might be minor data differences.

This means that you’ll be able to find everything from profitable daytraders to longer-term swing trading strategies. We recommend that you start with the daily timeframe, since that’s where you’ll be able to find the most trading strategies!

Factors affecting the Micro E-mini S&P 500 Index futures

Many factors can affect the S&P 500 Index, and these are some of them:

Movement of the component stocks: Being a capitalization-weighted index, the movement of higher-cap stocks tends to affect the index more.

Trade policies: News of changes in trade policies tend to make stock prices more volatile, and it reflects in the price of the index futures.

Political events: Geopolitical events, such as wars, elections, and referendums, can have huge effects on stock prices and the value of the S&P 500 Index.

Interest rate changes: Changes in the Fed’s rates also affect stock prices and the value of the S&P 500 Index.

Value of the U.S. dollars: When the USD is falling, the value of the S&P 500 Index rises, and when the USD is rising, the index tends to decline.

Conclusion

The Micro E-mini S&P 500 Index futures offer investors a cheaper way to hedge their exposure in the U.S. stock market. It also provides traders with an opportunity to speculate on the direction of the index. The contract can be traded on the CME’s Globex electronic platform.

 

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