At 1/10th the size of their E-mini counterparts, Micro E-mini futures can be used as a tool to more precisely hedge a portfolio of any size. To understand the significance of these contracts, let’s take a look at the history of index futures markets.
The Big S&P 500 Contract
In 1982, CME Group launched the pit-traded S&P 500 futures contract. As popularity in this contract grew and markets stayed relatively bullish through the 80’s and 90’s, with it grew the size of the S&P 500 futures contract, so the size of the notional value of the contract priced out many traders looking for a hedging option. Into the mid 90’s the standard S&P 500 futures contract is now a roughly $800,000 notional value product, so if you don’t have at least $800,000, you couldn’t use the product to hedge.
Enter E-mini Futures
As a result of the massive barrier to entry in the S&P 500 Index futures, CME Group launched the E-mini S&P 500 futures contract in 1997 and other E-mini futures products were soon to follow. At the time of launch, the E-mini S&P 500 had a notional value of around $60-80,000, making it a more suitable product for individual traders and a more realistic product to use in a hedging strategy. Since then, with the S&P 500 continuing on a bullish trajectory, the notional value has increased up to $180,000. Just as back in 1997, the margin requirements for the E-mini contract have now become cost-prohibitive for many traders. As a hedging tool, the notional value of the E-mini S&P 500 is simply too high for many.
The Era of the Micro E-mini
In 2019, the Micro E-mini S&P, along with other major micro-sized index futures markets were introduced. This brought the notional value of the newest and smallest S&P 500 futures contract to about $17,000, once again making it a suitable hedging instrument. Micro E-mini futures include all levels of investors independent of portfolio size. At just 1/10th the size of E-mini contracts, Micro E-mini traders of all levels can now achieve a more precise hedge.
Learn more about using Micro E-minis for a more precise hedge on a portfolio in this 3-minute video:
Get Started with NinjaTrader
NinjaTrader supports more than 100,000 traders worldwide with a powerful and user-friendly trading platform, deep discount commissions and world-class support. NinjaTrader is always free to use for advanced charting, strategy backtesting and an immersive sim trading experience.
Download NinjaTrader’s award-winning trading platform and get started with a free trading demo with real-time market data today!
This article is intended for educational and informational purposes only and should not be viewed as a solicitation or recommendation of any product, service or trading strategy. It includes content from independent persons or companies that are in no manner affiliated with NinjaTrader Group (NTG) or any of its affiliates. The content and opinions expressed in this article do not necessarily reflect the official policy or position of NinjaTrader or any of its affiliates.