Micro E-mini S&P 500 Index Futures: what are they and how do they work?

In this guide, we will explore the essential aspects of Micro E-mini S&P 500 Index Futures, including their definition, value, trading hours, expirations, a comparison with Mini Futures, recommended brokers, and alternatives to futures trading. At this end of this article, you'll be equipped for deciding whether you should consider these futures in your strategy.

What is the S&P 500?

The S&P 500, established on March 4, 1957, by Standard & Poor's (S&P), is a renowned stock index. S&P, formed in 1941 through the merger of Standard Statistics Company and Poor's Publishing, is a respected financial rating company. This index comprises 500 stocks traded on the New York Stock Exchange (NYSE) and represents a significant portion of the US stock market.

Approximately 80% of the total market capitalisation in the US stock market is accounted for by these 500 large-cap companies. This makes the S&P 500 an accurate reflection of the overall market situation.

How to invest in the S&P 500 index?

Here are the main ways of investing in the S&P 500 index:

  1. Stocks: You can invest by purchasing shares of the index companies in proportion to their weighting in the S&P 500.
  2. Futures: Utilising derivatives, you can engage in leveraged trading of the S&P 500.
  3. Options: In addition to traditional options on the E-mini S&P 500, the CME Group offers E-Micro options with various expiration frequencies (weekly, end of month, and quarterly).
  4. Investment funds and ETFs: These financial instruments allow you to replicate the index's performance.

Read here to learn how to invest in the S&P 500.

Now, let's focus on Micro E-mini S&P 500 Index Futures.

What are Micro E-mini S&P 500 Index Futures?

Micro E-mini S&P 500 Index Futures are a scaled-down version of the traditional S&P 500 futures contract, similar to Mini Futures. Both are traded on the Chicago Mercantile Exchange (CME). These micro futures offer distinct advantages to investors, such as lower margin requirements, which translate to reduced capital needs for trading.

While a standard E-mini S&P 500 futures contract has a value of $50 per point, a micro contract is ten times smaller, with a value of $5 per point. The creation of S&P 500 micro futures, like mini futures, aims to expand access to index investment for a broader range of investors who may have been deterred by capital or risk constraints associated with the traditional S&P 500 futures.

How do Micro E-mini S&P 500 Index Futures work?

Micro E-mini S&P 500 Index Futures are traded on the Chicago Mercantile Exchange (CME), a part of the CME Group, with the S&P 500 stock index as their underlying asset.

Investors can speculate on the movements of the S&P 500, taking both bullish (expecting a rise) and bearish (anticipating a fall) positions. The process is straightforward:

  1. Choose your directional stance—upward or downward—based on your market outlook.
  2. If you foresee an upward trend, you buy. If you anticipate a decline, you sell (short).
  3. Determine the number of contracts to trade. More contracts amplify your potential gains or losses for each tick in your favour or against your position.

How much is a tick in the Micro E-mini S&P 500 Index Futures?

A “tick” is the smallest amount that a price can move up or down in the trading market. In the trading of S&P 500 index futures, the smallest price movement is 0.25 points. So if the index is at 3200, the next levels it can go to are 3200.25, 3200.50, 3200.75, and then 3201. This is true whether the index goes up or down.

So, in the S&P 500 futures, one tick means the price changed by 0.25 points. In simple terms, one full point equals four ticks because 1 divided by 0.25 equals 4. For the smaller Micro E-mini S&P 500 futures, each tick is worth $1.25. This is because one full point is worth $5, and a tick is a quarter of a point.

Here's an example to make it even clearer:

Let's say the S&P 500 index goes up by 10 points. Each tick (which is 0.25 points) changes the value of the Micro E-mini S&P 500 contract by $1.25. To find out the total change in the contract's value, you can do a simple math calculation:

  • 10 points increase in the index
  • 4 ticks make up one point
  • Each tick is worth $1.25

So, the contract's value would change by $50. The math looks like this: 10 points x 4 ticks per point x $1.25 per tick = $50.

At what time can it be traded?

The Micro E-mini S&P 500 futures are traded almost 24 hours a day, from Sunday evening to Friday evening in U.S. time. Specifically, trading starts at 6:00 p.m. Eastern Time (ET) on Sunday and ends at 5:00 p.m. ET on Friday. There is also a daily trading break from 5:00 p.m. to 6:00 p.m. ET.

For the UK, this means:

  • Trading starts: 11:00 p.m. UK time on Sunday
  • Trading ends: 10:00 p.m. UK time on Friday
  • Daily trading break: 10:00 p.m. to 11:00 p.m. UK time

Remember to double-check the time difference, especially during the periods when Daylight Saving Time starts or ends.

Expiration of the Micro E-mini S&P 500 Index Futures

Micro E-mini S&P 500 Index Futures usually expire on the third Friday of the contract month. The contract month is the month when the futures contract will end, and it is part of the contract's name. For example, if you are trading a “September” Micro E-mini S&P 500 futures contract, it will expire on the third Friday of September.

On the expiration day, trading of that specific contract usually stops in the early afternoon, U.S. time. After that, the contract is considered “settled,” which means it's closed and can't be traded anymore.

If you have an open position in a Micro E-mini S&P 500 futures contract that is expiring, you will need to either close the position before the expiration or it will be settled automatically based on specific rules. If you don't want your trading to stop, you can “roll over” your position to a contract with a later expiration date.

What is the main difference between the Micro and E-Mini futures?

The main difference between Micro and E-mini futures is their size. Specifically, Micro futures are much smaller than E-mini futures, which means they require less money to trade.

Here's a simple way to understand it:

  • An E-mini S&P 500 futures contract has a value of $50 per point.
  • A Micro E-mini S&P 500 futures contract is ten times smaller, with a value of $5 per point.

Because Micro futures are smaller, they require less money upfront, known as the “margin,” to start trading. This makes Micro futures more accessible for individual investors or those who are new to futures trading. It also means you're taking on less financial risk compared to trading the larger E-mini contracts.

Both Micro and E-mini futures are traded on the Chicago Mercantile Exchange (CME) and are ways to invest in the S&P 500 index. But, the smaller size of Micro futures makes them a more flexible option for a broader range of investors.

What is the best broker to invest in Micro E-mini S&P 500 Index Futures?

Selecting the best broker for investing in Micro E-mini S&P 500 Index Futures is crucial. Here are some key considerations:

  1. Regulation: Ensure the broker is properly regulated by the relevant authority – the FCA in the UK.
  2. Data: The broker should provide real-time price and volume data, including market depth, ideally at no cost or with minimal fees.
  3. Commissions: Look for brokers with competitive commissions. For instance, the commission for each contract of the Micro S&P 500 future is €0.75 per contract if you sign up with the FCA-licensed broker DEGIRO (have a look at this DEGIRO review for more information).
  4. Margin requirements: Check that the broker's margin requirements align with those specified by the CME Group Clearing House, without imposing higher amounts.
  5. Trading platform: The broker should offer a comprehensive trading platform with various order types, advanced charts, and real-time market quotes. This platform should be accessible via web, mobile, and tablet.
  6. User-Friendly: The platform should be user-friendly and responsive, especially for order-related actions. Additionally, reliable customer support is essential for trading futures, which are complex and tailored to high-risk profiles.

To help you out, we've done all the legwork and found the best futures brokers in the UK.

Alternatives to investing in Micro E-mini S&P 500 Index Futures

Here are some alternatives:

Summary

Micro E-mini S&P 500 Index Futures offer accessible and flexible entry points into futures trading, allowing a diverse range of investors to engage in this dynamic market. Understanding concepts like tick value and trading hours is essential, as is choosing the right broker with regulatory compliance, low costs, and user-friendly platforms.

Whether you're an experienced trader or a newcomer, Micro E-mini S&P 500 Index Futures provide an opportunity to navigate the world of futures trading with the potential for profit, making it a valuable addition to your investment journey.

FAQs

What is the advantage of trading Micro E-mini S&P 500 Index Futures over traditional stocks?

Micro E-mini S&P 500 Index Futures offer the advantage of diversification and leverage. Instead of investing in individual stocks, you gain exposure to the broader market movement represented by the S&P 500 index. Additionally, futures contracts allow you to control a larger position with a relatively smaller amount of capital, potentially amplifying both gains and losses.

Are there risks associated with Micro E-mini S&P 500 Index Futures?

Yes, there are risks. As with any investment, futures trading carries inherent risks, including the potential for substantial losses. The use of leverage means that even small market movements can lead to significant financial impacts. It's crucial to have a well-thought-out trading strategy, manage risk diligently, and be prepared for market volatility.

How do Micro E-mini S&P 500 Index Futures differ from Exchange-Traded Funds (ETFs)?

Micro E-mini S&P 500 Index Futures and ETFs are distinct financial instruments. ETFs represent a basket of stocks and can be traded throughout the trading day, much like individual stocks. In contrast, Micro E-mini futures are derivative contracts based on the S&P 500 index, and they offer leverage and exposure to index movements but have specified trading hours and expiration dates.

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