Do You Want to Trade Futures? 'Micro' Contracts Could Make it Easier

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 [e-mail]

(END) Dow Jones Newswires

March 11, 2019 15:50 ET (19:50 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.