Publication date: Aug. 2, 2024
In our articles on day trading on July 5 and July 19, you were introduced to the instrument futures and the concept of leverage. Today we would like to draw your attention to a relatively unknown concept Micro Future. Unknown makes unloved, but that is unjustified in the case of the Micro Future. We would like to explain the possibilities.
Click here for Daytrading part 1
Click here for Daytrading part 2
(Micro) futures
As described in the Daytrading articles, using futures is an excellent tool for the active investor. The cost is relatively low. The future is a listed regulated product that is easy to trade through your bank or broker and one can also respond to both price declines and price increases. In addition, there is the possibility of creating leverage. The disadvantage of well-known futures is often the high underlying value which makes it unsuitable for many retail investors.
The underlying value of many futures is so high because stock market prices have risen so much over the years. If we take the popular U.S. broad equity index S&P500, for example. This index has doubled in value over the past five years. As a result, the value of the future on the S&P500 has also doubled and would now represent a value of about $1.3 million. You understand that such large amounts are not suitable for many retail investors. We can also apply this same example to the Dow Jones, Nasdaq, DAX etc.
The phenomenon of oversized futures has led to the release of smaller futures. Moreover, the issuer of the S&P500 future mentioned above has even withdrawn this large future from trading. Its replacement is the Mini Future and its latest offspring is the Micro Future.
The Micro Future on the S&P500 has a value of $5 times the index's position. The S&P500 is trading at 5,400 points giving the Micro Future a value of $22,000.
This is quite different from the big old future of $ 1.3 million!
Because of the relatively modest value of $ 22,000, it is much easier for the private investor to trade this future. This future is also suitable for beginning investors who wish to trade without leverage. After all, you do not need to hold large sums of money to trade without leverage. For a further explanation of the concept of leverage and its application, please refer to our article Day trading part 2.
What Micro Futures are available?
Today Micro Futures are available on many indices and all of them can be traded simply through your bank or broker. Below are examples of some popular Micro Futures:
S&P500
Broad U.S. stock index. The product code is MES. The future has a value of $5 times the Index. Currently 5400 times $5 is $22,000-. Each point difference thus gives a fluctuation of $5.00 per future in your portfolio.
Nasdaq 100
Technology stocks. The product code is MNQ. The future has a value of $2.00 times the Index. Currently 18,500 times $2.00 is $37,000.00. Each point difference is $2.00 per future in the portfolio.
Dow Jones30
American major funds. The product code is MYM. The future has a value of $0.50 times the Index. Currently 40,000 times $0.5 is $20,000. Each point difference is $0.5 per future in your portfolio.
DAX40
German main funds. The product code is FDXS. The future has a value of €1 times the Index. Currently 18,000 times €1.
The AEX also has a mini future. Unfortunately, there is very little trading in this so it is not suitable for active trading.
Conclusion:
The Micro Future is well suited for the private investor who wants to take advantage of price rises and falls, especially in the U.S. equity markets. The more experienced and skilled retail investors can apply leverage by using a lower amount than the value of the future when trading. Through the Micro Future, it is well possible for investors with somewhat modest balances to actively trade on pleasant terms.
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Disclaimer: Investing involves risk. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. They are therefore for educational purposes only.