Use of micro e-minis for a more precise protection of a portfolio


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At 1/10 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 importance of these contracts, let’s take a look at the history of index futures markets.

The big S&P 500 contract

In 1982, the CME Group launched the pit-traded S&P 500 futures contract. As this contract grew in popularity and the markets remained relatively optimistic in the 1980s and 1990s, the size of the S&P 500 futures contract grew with it, so that the notional value of the contract priced out many traders looking for a hedging option. Until the mid-1990s, the standard S&P 500 futures contract is now a product with a face value of approximately $ 800,000. So if you don’t have at least $ 800,000, you can’t use the product for protection.

Enter e-mini futures

Due to the massive entry barrier into the S&P 500 index futures, the CME Group introduced the E-mini S&P 500 futures contract in 1997 and further E-mini futures products should follow soon. At the time of launch, the E-mini S&P 500 had a face value of around $ 60-80,000, making it a more suitable product for individual traders and a more realistic product for a hedging strategy. Since the S&P 500 continued its upward trend, the face value has risen to $ 180,000. As in 1997, the margin requirements for the e-mini contract have become unaffordable for many traders. As a hedging instrument, the nominal 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 was launched along with other major micro-sized index futures markets. This brought the face value of the newest and smallest S&P 500 futures contract to around $ 17,000, again making it a suitable hedging tool. Micro-E-Mini-Futures encompass all levels of investors, regardless of the portfolio size. With just 1/10 the size of e-mini contracts, micro e-mini traders of all levels can now achieve more precise hedging.

Learn more about the use of Micro E-minis to more precisely hedge a portfolio in this 3-minute video:

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