CFDs vs. Micro Futures – Which one is better?

Most brokers here and on the other side of the Atlantic do not even offer the normal, genuine US futures on the S&P 500, Dow Jones Index and Nasdaq 100 for trading. Both margin and point values are much too high for the “small traders” and therefore hardly tradable. For this reason, mini-futures have been preferred so far, similar to the way Eurex has been offering the mini-Dax since October 2015.

But these mini-futures still require a “maintenance margin” often beyond the USD 6,000 limit. If one takes the American provider “AMP Futures” as a reference, the Dow Jones currently has a current USD 5,900 USD (USD 500 USD in day trading), the S&P 500 has a current USD 6,300 USD (USD 400 USD in day trading) and a full USD 7,600 USD must be deposited in the Nasdaq (USD 500 USD in day trading). German banks and brokers are usually significantly higher. If you look at the margin for trading with the Mini-Dax in comparison, it becomes clear that these figures are still very high.

One reason for this is the strong growth of the indices over the last 20 years. This has not yet been able to change the attractiveness of CFDs, so that trading in stock index futures is still largely reserved for professional traders. Because the restrictions can be easily seen in the example of the S&P alone. While the original large contract has a multiplier of 250, the E-Mini now has a multiplier of only 50, which is the point value in USD, while the tick value is 0.25 points = 12.50 USD. For the private trader rather rarely tradable.

The Opening For The Retail Market

In order to change this, the CME has, so to speak, developed a mini of the mini, the above-mentioned micro-E-mini future. In the USA they are often referred to as “Mom & Pops” futures, because the most important US indices are now tradable for practically everyone.

To achieve this goal, the specifications of the E-mini contracts have been reduced to 1/10. As a result, not only is the margin at 10% of what the E-Mini still requires, but the tick value is reduced accordingly. For example, in the S&P it is 1.25 USD per 0.25 points. This corresponds to a multiplier point value of only 5.00 USD. This makes scaling of trading possible for private traders as well. If one has the intraday margin of 40.00 USD for the Micro E-mini S&P in AMP Futures in mind, this could well be a good alternative for CFD trading. But there are differences, as will be seen below.

Contract Specifications The Micro E-mini Futures

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

  • 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 USD 5.00 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 symbol 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”.

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

“Russell 2000”: here little noticed, but important

While the orientation and composition of the first three indices are likely to be well known, the rather less noticed Russell 2000 deserves additional attention. It is derived from the Russell 3000, which is one of the world’s largest stock indices and contains the 3000 US stocks with the highest market capitalization. According to this, this index represents around 98% of the American stock markets.

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

Which German brokers offer Micro E-mini Futures?

There are many reasons to trade the Micro E-mini Futures with a German broker. But as so often, there are also arguments against it. Some of the advantages are certainly the German-language support, a control by the Bafin and thus if necessary the enforcement of claims against the broker, as well as the simplification of the tax handling of profits with regard to the final withholding tax.

In the case of brokers outside of Germany or even the EU, however, the latter can also be an advantage if you are able to tax your profits yourself or to reclaim tax payments made abroad. Beyond that, however, the question of trading costs and possibly also that of margin requirements is likely to play a decisive role.

German Future Brokers in comparison

In the meantime, some German future brokers are offering the Micro E-mini Futures. However, it should be worthwhile to take a look at the different conditions in advance. I have written to several brokers. The brokers BANX, WHSelfInvest, Lynx, Sino and Captrader have answered. None of them, however, makes a clear statement about whether the stated costs are half or round turns. One must therefore assume that they are always half turns.

The broker Lynx charges 4.00 Euro per contract and is therefore the most expensive one so far. Banx is slightly cheaper and charges 3.50 Euro. Better get away with Sino AG. Here the contract costs only 2.60 Euro for CME futures, which is considerably less. However, Sino belongs rather to the brokers for real heavy traders. The minimum deposit here is 25,000 euros and the price per contract refers to 1 to 800 units per month. From the 801st contract onwards, the trading costs drop to 1.60 euros each.

Micro E-mini Futures go even cheaper

So far, the broker captrader seems to be the cheapest in Germany. The offshoot of the Düsseldorf broker FXFlat is an Introducing Broker of Interactive Brokers in Great Britain. Captrader is therefore based in Germany, but the account is managed on the island.

The costs per contract here are in comparison at a low 1.25 Euro. Furthermore, Captrader is the only one to provide information about the required margins directly on the website. Using a simple formula to calculate the margin, the broker currently comes to 391.00 USD for the Dow Jones Micro E-mini Future, for example.

As the WHSelfInvest website was not available at the time of writing this article, no information can be given on the costs of this service at the moment. However, since I have received a mail that the Micro E-mini Futures will be available after separate activation, they will at least be tradable.

Trading Micro E-mini Futures outside Germany

A comparison of trading costs with brokers who are not based in Germany makes it clear why trading there may be more sensible despite weighing up the advantages and disadvantages. I have chosen “AMP Futures” as an obvious reference broker. Although it comes from the USA, it is also based 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

The trading costs of futures trading protect the account

These low margins of AMP Futures are in my opinion unbeatable so far! Add to this the incredibly low trading costs. With 0.37 USD commission per half-turn and thus only 0.74 USD for the complete round turn, trading the Micro E-mini Futures is extremely inexpensive and cost-saving. Even with very small accounts, intraday trading is extremely easy. For overnight positions, of course, the increased maintenance margin requirements must be taken into account.

With all future brokers, German and non-German, it must also be taken into account that costs may be incurred for obtaining real-time quotes, especially for the so-called Level 2 real-time data. Depending on the broker, however, these costs are charged if sufficient turnover is generated. This is the case with Captrader and Sino AG, for example.

My conclusion for trading with Micro E-mini Futures

In my view, the Chicago Mercantile Exchange has achieved a great success with the four new Micro E-mini Futures. In contrast to the Eurex Mini-Dax, where liquidity leaves something to be desired for some traders, the CME should have little problem with them sooner or later, to the delight of traders. After all, it is in a leading position in this respect, so there will be no lack of liquidity.

Furthermore, the margin requirements and commissions for trading are so low that even smaller retail accounts can benefit from real futures trading. It is true that the costs for German brokers are about the same or a slightly higher level as pure CFD trading, taking all side effects into account. However, a transparent exchange-traded product can be used for this purpose, and not that of any CFD issuer or broker, who in the worst case is a market maker.

From a risk management point of view, the new futures also appear to be advantageous. Due to the low tick value, a sensible scaling of positions is possible without putting even smaller accounts at too much risk.

If one falls back on a not German broker like AMP-Futures, the trade with the Micro E-mini Futures is not only substantially more favorable and beats the cost relation to CFDs clearly. Moreover, the margins are incomparably lower according to the ESMA regulations for CFD trading. Not least because of the resulting possibility of scaling positions, the CME Micro Futures therefore represent a real alternative to CFD trading. Even if you have only traded micro CFDs up to now.

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