At 1/10 the size of their E-mini counterparts, Micro E-mini futures can be used as a tool to more accurately hedge any size portfolio. 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, CME Group launched the S&P 500 futures contract As the popularity of this contract grew and markets remained relatively bullish during the 1980s and 1990s, the size of the 500 grew, so the size of the notional value of the contract is become fixed by many traders looking for option hedging. In the mid-1990s, the standard S&P 500 futures contract was 800,000, so if you didn’t have at least $800,000, you couldn’t use the product to hedge.
Enter E-mini Futures
Due to the huge barrier to entry in the 500, CME Group launched the E-mini S&P 500 1997 futures contract and other E-mini futures products would soon follow. At launch, the E-mini S&P 500 had a notional value of around $60-80,000, making it a more suitable product for individual traders and a more realistic product to use in a hedging strategy. . Since then, with the S&P 500 continuing on a bullish trajectory, the notional value reached $180,000. As in 1997, the margin requirements for the E-mini contract are now prohibitive for many traders. As a hedging tool, the theoretical value of the E-mini S&P 500 is simply too high for many.
The era of the Micro E-mini
In 2022, the Micro E-mini S&P was introduced, along with other large micro-sized index futures. This brought the notional value of the futures contract to 500 17,000, again making it a suitable hedging instrument. Micro E-mini futures include all levels of investors, regardless of portfolio size. At only 1/10 the size of E-mini contracts, Micro E-mini traders of all skill levels can now achieve more accurate coverage.
Learn more about using Micro E-minis to get more accurate portfolio coverage in these 3 videos
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