Do You Want to Trade Futures? 'Micro' Contracts Could Make it Easier
March 11 2019 - 4:05PM
Dow Jones News
By Alexander Osipovich
Exchange giant CME Group Inc. hopes to draw more individual
investors into the risky business of trading futures with a plan to
launch new, bite-sized contracts linked to U.S. stock indexes.
CME's "Micro E-mini" futures linked to the S&P 500,
Nasdaq-100, Russell 2000 and Dow Jones Industrial Average will be
available for trading in May, pending regulatory review, the
Chicago-based exchange operator said in a press release on
Monday.
Stock-index futures allow traders to place bets on whether
indexes like the S&P 500 will go up or down. With CME's new
family of futures contracts, traders won't have to post as much
cash upfront to place such bets.
The Micro contracts will be one-tenth the size of CME's existing
"E-mini" stock-index contracts. So if a trader currently has to
post around $7,000 to trade an E-mini S&P 500 futures contract,
he or she would only need to post about $700 to trade a Micro
version of the same contract, according to Tim McCourt, CME's
global head of equity-index products.
The planned contracts would "make equity index futures trading
more accessible to active traders," CME said in the press
release.
CME is only targeting sophisticated day traders, and has sought
to educate traders about the risks of futures, Mr. McCourt said in
an interview. "Like any investment vehicle, it's important that
traders educate themselves in how to use futures," he said.
E-mini contracts on the S&P 500 are among CME's most heavily
traded products and already enjoy popularity among day traders
active in futures.
CME has traditionally focused on institutional customers, but in
recent years it has sought to win over individual investors,
including by running a series of TV commercials.
The exchange operator has touted its stock-index futures as a
way to play the market around the clock, since the contracts can be
traded nearly 24 hours a day. Equities, in contrast, become much
harder to trade after the stock market closes at 4 p.m. Eastern.
CME also says its futures are a cheaper way to bet on swings in the
S&P 500 and other indexes than exchange-traded funds linked to
the same indexes.
Last year, retail customers traded around 660,000 futures
contracts a day in CME's markets, up 27% from 2017, CME said in
Monday's release. Still, that accounted for less than 4% of CME's
average daily volume last year.
Futures trading is risky because bets that go sour can end up
costing investors more money than they put upfront, leaving them
deep in the hole. Some contracts are also notoriously volatile. The
Commodity Futures Trading Commission says on its website that
futures trading "is a volatile, complex and risky venture that is
rarely suitable for individual investors or 'retail
customers.'"
Chicago-based CME is the world's largest exchange company by
market capitalization, and it dominates U.S. futures trading after
having acquired the Chicago Board of Trade and the New York
Mercantile Exchange in the 2000s.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
March 11, 2019 15:50 ET (19:50 GMT)
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