The S&P 500 has been the standard to beat since it was launched back in the 1970s. This resulted in investors moving to Index futures, options, and ETFs in an attempt to normalize returns, and take advantage of investing in the entire market, rather than trying to pick individual stocks.
On May 6, the CME Group is set to release one of the most anticipated futures trading contracts to date: the E-Micro Index Futures.
Closely tied to their older brothers, the E-mini Index Futures, the Micro E-mini Futures or E-Micro Futures, will be based on the same underlying basket of stocks: the S&P 500, but will have just 1/10 of the notional value of the larger contract, already a baby brother to the full-size SP Pit futures, the original contract.
With volatility increasing and the market racing to record highs, the feasibility of trading a contract with a larger notional value such as the E-mini Index Futures has become increasingly difficult for smaller traders. The CME is hoping to enlist traders in the E-Micro Index futures, who were up to now unable to participate in the index futures markets.
According to Dave Lerman at the CME Group, “In all my years at the CME Group, I have had the privilege of launching dozens and dozens of contracts. This is one of the ones [contract]s that has the most anticipation.There’s a lot of people excited about the Micro E-mini Futures.”
To offer some idea of the difference between contract sizes, one contract of the SP Pit traded futures, with a notional value of approximately $700,00, is roughly 5 times the size of the E-mini Index futures, with a notional value of about $140,000, putting both of the contracts out of the range of many smaller investors. In comparison, the new E-mini Micro futures will have a notional value of $14,000, making it much more accessible to smaller investors.
Still, for those who are wary of futures trading in general, ETFs such as iShares Core S&P 500 ETF (IVV), Vanguard S&P 500 ETF (VOO), SPDR S&P 500 ETF Trust (SPY), Schwab U.S. Large Cap ETF (SCHX), and iShares S&P 500 Growth ETF (IVW) continue to offer investors the opportunity to invest in the broader market, with typically less risk, although different tax consequences.
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