The new Micro E-mini futures: an alternative to CFD trading? (2021)

Micro futures: In Germany, anyone who trades stock indices such as the Dax, S&P, Dow Jones and the Nasdaq with CFDs instead of directly with futures primarily does so because they want to benefit from the good scalability and the relatively low margins. In the U.S., however, it’s a different story because CFDs are prohibited. In order to still make trading in futures accessible to the general public, the Chicago Mercantile Exchange (CME) started offering the Micro E-mini futures for four U.S. stock indices on May 6th, 2019. Does it make sense for those of us in Europe to also trade with Micro E-mini futures as an alternative to CFD trading?

Learn: DAX-Futures basics

What makes the Micro E-mini futures attractive

Most brokers here and across the Atlantic do not even offer the normal, real U.S. futures on the S&P 500, Dow Jones Index and Nasdaq 100 for trading. Both the margin and the point values are much too high for the “little traders” and thus almost untradable. This is why the Mini futures have been preferred so far, similar to how Eurex has been offering the Mini-Dax since October 2015.

But these mini-futures still require a “maintenance margin” often upwards of 6,000 USD. If you take the American provider “AMP-Futures” as a reference, the Dow Jones would currently be 5,900 USD (in day trading 500 USD), the S&P 500 would cost you 6,300 USD (day trading 400 USD) and the Nasdaq would be a good 7,600 USD (day trading 500 USD). German banks and brokers are usually significantly more. If you look at the margin for trading with the Mini-Dax in comparison, it’s obvious that these numbers are still very high.

Stock Index Maintenance and daytrade margin
High margins with the old Mini futures even with AMP Global

One of the reasons for this is the strong growth of the indices over the past 20 years. So far, they have not been able to change the attractiveness of CFDs, meaning that trading in stock index futures is still largely reserved for professional traders. The restrictions can be easily seen just by using the example of the S&P. While the original, large contract has a multiplier of 250, the E-mini is only 50. This corresponds to the point value in USD, while the tick value is 0.25 points = 12.50 USD. Not all that tradable for private traders.

Opening for the retail market

In order to change that, the CME has developed a mini of the mini, so to speak: the aforementioned Micro E-mini future. In the U.S. they are also often referred to as “mom & pop” futures because the most important U.S. indices can now be traded by practically everyone.

To achieve this goal, the specifications of the E-mini contracts were reduced to 1/10. This means that not only is the margin 10% of what the E-Mini requires, but the tick value is also accordingly reduced. In the S&P, for example, it is 1.25 USD per 0.25 points. This corresponds to a multiplier point value of only 5.00 USD. This means that trading can also be scaled for private traders. If you keep in mind the intraday margin of 40.00 USD for the Micro E-mini S&P at AMP Futures, this could very well be a good alternative to CFD trading. But there are differences, as we will see below.

Contract specifications of the Micro E-mini futures

The CME Group has created new Micro E-minis for four of the most important stock index futures. At a glance, these are:

  • Micro E-mini S&P 500
  • Micro E-mini Dow Jones Industrial Average
  • Micro E-mini Nasdaq 100
  • Micro E-mini Russell 2000

The Micro E-mini S&P 500 has a contract size of 5.00 USD times the S&P 500 index. The minimum tick is 0.25 points and a tick value of 1.25 USD. The abbreviation for this contract is “MES.”

The Micro E-mini Dow has a contract size of 0.50 USD times the DJIA index. The minimum tick is 1 point and a tick value of 0.50 USD. The abbreviation for this contract is “MYM.”

The Micro E-mini Nasdaq 100 has a contract size of 2.00 USD times the Nasdaq 100 index. The minimum tick is 0.25 points and a tick value of 0.50 USD. The abbreviation for this contract is “MNQ.”

The Micro E-mini Russell 2000 has a contract size of 5.00 USD times the Russell 2000 index. The minimum tick is 0.10 points and a tick value of 0.50 USD. The abbreviation for this contract is “M2K.”

Screenshot of Micro Futures contract specifications
Contract specifications of the new CME Micro E-Mini futures

Due to some special features, I will go into more detail below on the respective and sometimes quite different margin requirements.

“Russell 2000”: little noticed here, but important

While you are likely already aware of the focus and composition of the first three indices, the less well-known Russell 2000 deserves special attention. It is derived from the Russell 3000, which is considered one of the world’s largest stock indices and contains the 3,000 U.S. stocks with the largest market capitalization. Accordingly, this index represents around 98% of the American stock markets.

The Russell 2000 includes the 2000 smallest stock companies from the aforementioned index. There is also the Russell 1000, which, logically, contains the 1000 strongest companies. This is also considered a competitor of the S&P 500 from Standard & Poor’s.

Which German brokers offer Micro E-mini futures?

There are several arguments in favor of trading the Micro E-mini futures with a German broker. But, as is so often the case, there are also arguments against it. Some of the advantages are certainly the German-speaking support, monitoring by the BaFin and thus, if necessary, the enforcement of claims against the broker, as well as the simplification of the profit taxation in regard to withholding tax.

With brokers outside Germany or even the EU, the latter can also be an advantage if you see yourself in a position to tax your profits yourself or to claim back tax payments made abroad. In addition, however, the issue of trading costs and possibly also the margin requirements do play a decisive role.

German future brokers in comparison

By now some German future brokers are offering the Micro E-mini futures. However, it’s worth taking a look at the different conditions in advance. I wrote to several brokers about this. The brokers BANX, WHSelfInvest, Lynx, Sino and Captrader replied to my inquiry. However, none of them make a clear statement as to whether the costs listed are half turns or round turns. One must therefore assume that these are always half turns.

The broker Lynx charges 4.00 euros per contract, making it the most expensive so far. Banx is a little cheaper and charges 3.50 euros. Sino AG is a bit cheaper still. Here the contract costs only 2.60 euros for CME futures, so it is significantly less. However, Sino is one of the brokers for real heavy traders. The minimum deposit here is 25,000 euros and the price per contract is valid for 1 to 800 contracts per month. After 801 contracts, the trading costs drop to 1.60 euros apiece.

Micro E-mini futures can be even cheaper

Captrader seems to be the cheapest broker in Germany so far. The offshoot of the Düsseldorf broker FXFlat is an Introducing Broker from Interactive Brokers in Great Britain. Thus, Captrader is based in Germany, but the account is kept in Great Britain.

In comparison, the cost per contract is low at 1.25 euros. In addition, Captrader is the only one to provide explicit information on its website about the required margins. Using a simple formula for calculating the margin, the broker, for example, currently comes to 391.00 USD for the Dow Jones Micro E-mini future.

As the WHSelfInvest website was not available at the time this article was written, no information can be given about its costs at the moment. But since I received an email stating that the Micro E-mini futures are available after a separate activation, they are, at least, tradable.

Trading Micro E-mini futures outside of Germany

A comparison of the trading costs with futures brokers that are not based in Germany makes it clear why trading there may make more sense, even though there are advantages and disadvantages to be weighed. I have selected “AMP Futures” as a reference broker. Although it is based the U.S., it also has a headquarters in Cyprus for European business.

AMP currently offers the following margins for the four Micros:

  • S&P 500 (MES) – 40.00 USD / maintenance margin according to CME: 600.00 USD
  • Nasdaq 100 (MNQ) – 50.00 USD / maintenance margin according to CME: 760.00 USD
  • Dow (MYM) – 50.00 USD / maintenance margin according to CME: 590.00 USD
  • Russell 2000 (M2K) – 25.00 USD / maintenance margin according to CME: 355.00 USD
Daily volume charat of S&P Micro E-Mini Future
High liquidity of the S&P Micro E-Mini future after just one week

The trading costs for futures trading are easy on your account

In my opinion, these low margins from AMP Futures are unbeatable so far! Then there are the incredibly low trading costs. With a 0.37 USD commission per half turn and thus only 0.74 USD for the complete round turn, trading in Micro E-mini futures is extremely inexpensive and economical. You can even trade intraday very well with a very small account. For overnight positions, of course, you have to take into account the increased maintenance-margin requirements.

With all future brokers, both German and non-German, it is also important to consider that there may be costs for using realtime prices, in particular for so-called level 2 realtime data. Depending on the broker, however, these are offset when sufficient revenue has been generated. This is the case, for example, at Captrader and Sino AG.

Meet Micro E-mini Futures Products Overview (Video)

Get to know Micro E-mini futures and what they will provide to the marketplace.

My conclusion for trading in Micro E-mini futures

From my point of view, the Chicago Mercantile Exchange and the four new Micro E-mini futures are a big hit. In contrast to the Mini-Dax of Eurex, where the liquidity leaves something to be desired for some traders, the CME shouldn’t have any problems. After all, it is at the forefront in this regard, so it won’t be lacking in liquidity.

In addition, the requirements for margin and trading commissions are so low that even smaller retail accounts can benefit from real futures trading. It is true that the costs for German brokers are roughly on the same or a slightly higher level as pure CFD trading, when all additional fees are taken into account. However, a transparent product traded on the stock exchange should be used for this, and not that of just any CFD issuer or broker that is, worst case, a market maker.

From a risk management perspective, the new futures also appear advantageous. Due to the low tick value, positions can be scaled sensibly without putting smaller accounts at too much risk.

If you use a non-German broker such as AMP Futures, trading with Micro E-mini futures is not only much cheaper and clearly beats the costs of CFDs, but, in addition, the margins for CFD trading according to ESMA regulations are considerably lower. The ability to scale positions is only one of the reasons that the CME Micro futures represent a genuine alternative to CFD trading. Even if you have only traded micro CFDs so far.

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