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Trading the new CME E-Micro's (E micro) MES, MNQ, MYM, M2K and other micros


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Trading the new CME E-Micro's (E micro) MES, MNQ, MYM, M2K and other micros

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For those that missed the AMA session with FT71 today:



It was discussed that there is a Micro ES contract (E-Micro) "coming soon" by the CME. The ES is the e-mini of the full sized SP contract, trading at 1/5th value, and it is thought the Micro ES will trade at 1/5th the size of the ES.

I have been advocating the use of Micro CME FX contracts such as the M6E for a couple of years now for a way to traders to cut their teeth but still maintain fully regulated and centralized trading on the futures market, but without the more expensive $12.50/tick price.

Hopefully the Micro ES will see more liquidity than the M6E variant of the 6E EUR/USD.

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I assume some brokers would allow one to hedge the ES over against the new micro ES.

Ken

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Big Mike View Post
For those that missed the AMA session with FT71 today:



It was discussed that there is a Micro ES contract (E-Micro) "coming soon" by the CME. The ES is the e-mini of the full sized SP contract, trading at 1/5th value, and it is thought the Micro ES will trade at 1/5th the size of the ES.

I have been advocating the use of Micro CME FX contracts such as the M6E for a couple of years now for a way to traders to cut their teeth but still maintain fully regulated and centralized trading on the futures market, but without the more expensive $12.50/tick price.

Hopefully the Micro ES will see more liquidity than the M6E variant of the 6E EUR/USD.

Mike

I hope it wont face the same fate as M6E and will attract those trading spot FX and CFD.

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This is great news. The only concern as others have pointed out is liquidity.

Since the ES is such a massively liquid instrument that 'everyone' wants to trade. Perhaps the mini version will be attractive.

It does however take time for mini's to gain popularity. Sometimes years. In South Africa we have the ALSI which is the most highly traded index future and tracks the top40 companies. The mini of the ALSI is one 10th the size, the ALMI. For many years the ALMI wasn't really tradable, there just wasn't enough volume. But it has been getting better consistently year on year.

Personally I dont know why mini's aren't more popular. I think they're great.

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Personally I look forward to trading this instrument for various reasons, namely: hedging, arbitrage, and directional plays. I think the volume will come in time considering the popularity of the regular ES contracts.

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The other micros are day trading failures because of the lousy commission and margin structure, but I think the ES is big enough to pull it off. Probably only good for building discipline and not your account though. It will be interesting to see.

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I really hope HFT and bot do their bit to liquidity and volatility.

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vegasfoster View Post
The other micros are day trading failures because of the lousy commission and margin structure, but I think the ES is big enough to pull it off. Probably only good for building discipline and not your account though. It will be interesting to see.

Yes the M6E is inferior to 6E in terms of trade costs. But trade costs should be near the bottom of the list for a beginner who is likely to lose 50% of their account in a matter of weeks due to rookie mistakes.

I like the micro's for recommending them to beginners to gain their footing before they move up to the bigger contracts. Of course it's always a battle, because the rookie's are also constantly trying to find the lowest margin, lowest commission brokers --- the ones least likely to give you the best service or advice and most likely to have the highest turnover. So it's a process of educating them.

But if we can get the Micro ES then I think it will be a great learning tool and will help save a lot of rookies from some big losses.

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Yes the M6E is inferior to 6E in terms of trade costs. But trade costs should be near the bottom of the list for a beginner who is likely to lose 50% of their account in a matter of weeks due to rookie mistakes.

I like the micro's for recommending them to beginners to gain their footing before they move up to the bigger contracts. Of course it's always a battle, because the rookie's are also constantly trying to find the lowest margin, lowest commission brokers --- the ones least likely to give you the best service or advice and most likely to have the highest turnover. So it's a process of educating them.

But if we can get the Micro ES then I think it will be a great learning tool and will help save a lot of rookies from some big losses.

Mike

Agreed, good for new people, but you will reach a point where you would like to be able trade the equivalent of 1 to 2 full contracts broken down into 3-6 units, so IMO it's no good for providing a comfortable transition to trading multiple full contracts.

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Agreed, good for new people, but you will reach a point where you would like to be able trade the equivalent of 1 to 2 full contracts broken down into 3-6 units, so IMO it's no good for providing a comfortable transition to trading multiple full contracts.

Agreed. There will be a similar conversion table like oil:



At some point the beginner, assuming they have a positive expectancy of course, should move to the e-mini.

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vegasfoster View Post
The other micros are day trading failures because of the lousy commission and margin structure, but I think the ES is big enough to pull it off. Probably only good for building discipline and not your account though. It will be interesting to see.

This, the equivalent to mini-options no thanks. Good for brokers not for traders

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This, the equivalent to mini-options no thanks. Good for brokers not for traders

Again, it is meant for a beginner as a way to lower risk. Once you have a positive expectancy and are trading 5 micro lots then clearly you should transition to minis.

Focusing only on commission as a beginner is a mistake.

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I really hope HFT and bot do their bit to liquidity and volatility.

You beat me to the punch on that one. Anybody here WRITING algos?!

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YM futures contract would not be an alternative for beginners?

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YM futures contract would not be an alternative for beginners?

YM is good, but still too big for micro accounts (i.e. $5K). This will bridge the gap. More importantly it will allow smaller accounts to scale in/out.

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YM futures contract would not be an alternative for beginners?

Yes it is better. You can see a full breakdown here:



But a micro ES would be even better.

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New poll posted on this subject

Would you trade an E-Micro version of the SP500 that traded at 1/5th the size of the "ES", if there was sufficient liquidity?

Total votes: 335
 


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Yes it is better. You can see a full breakdown here:



But a micro ES would be even better.

Mike

I know I need to watch the webinar, so pardon me if I am jumping the gun, but has anyone ever put together a chart/spreadsheet that ranks contracts from "beginner friendly" to "you better work for a hedge fund"??

I suppose one could look at the ATR*($ per point) and rank contracts that way, but then again liquidity and other factors might come into play that would skew the results. (Not planning on trading lumber anytime soon.)

I may be dreaming, but still, if anyone has anything like this I (and I bet others) would love to see it.

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I could see the benefits of incorporating the micro ES into a more cost efficient and risk adverse option in a long-short strategy with stocks. Outside of hedging, I'd rather live on market speed or momentum if you will. I appreciate where this is going - the whole increase the time-frame and decrease the risk, but I'd feel more inclined if the commission were 1/5th the size.

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I've tried trading ES on the Nadex platform. They offer a 1/5 version of ES in the form of bullspreads. It is regulated by the CFTC and legal in the US. Some huge issues with it is that they do not allow you to put stops or limits in, the bull spreads would charge you huge premium if you wanted to cap your risk, and there was a lot of slippage in prices that would mess you up.

I look at it as a way to build discipline, but it is very hard to build confidence when you have to stay at your screen making sure your risk target isn't tagged.


If there was another version of this I would definitely check it out, but I feel it would struggle with the same issue.

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Looks a bit like CFDs and ETFs - question would be if you can trade overnight and still afterhours.
Over all it is likely to be much pricier to trade 5 micros than one mini because of margin, spreads,
bad fills etc. With this a slight gain for a rookie is melting to zero or negative.

One has to think that volume flowing away from one instrument influences all dependent as well
as the original one: less volume finally in the mini means more volatility and stops set at the same
level are suddenly at higher risk!

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Hello Traders,

Interesting poll. Not what I expected. It is currently showing 30% would not trade a Micro-ES contract.

Can those of you who voted "no" please post a bullet list stating why not?

I have been pushing the CME to release a micro-index product for reasons others as well as Mike have discussed here. I have met with upper management, etc. I want to make sure all views on this product are covered at our next meeting.

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Hi @FuturesTrader71

the poll result: please consider that a big part of futures.io (formerly BMT) members are not trading
the ES because it is not in the time zone of the trader...

Then I would be happy to see a price comparison between the mini and the micro
with all costs / trading times / spreads (please see post above).

If things are transparent and easy to handle - there will be of course a market.

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FuturesTrader71 View Post

Can those of you who voted "no" please post a bullet list stating why not?

I actually voted yes, but that is only because there was no "Yes until you are more comfortable trading multiple contracts on an instrument that is bigger, but has a tighter spread, more liquidity and lower commissions" option.

One thing I hadn't considered that came from this thread was that a micro contract could be held longer, which might be an appeal to some traders who are OK with trading the ES, but only trade short timeframes. In that case the issues above would be less of an issue. Maybe some more experienced traders hadn't considered this either.

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FuturesTrader71 View Post
Hello Traders,

Interesting poll. Not what I expected. It is currently showing 30% would not trade a Micro-ES contract.

Can those of you who voted "no" please post a bullet list stating why not?

I have been pushing the CME to release a micro-index product for reasons others as well as Mike have discussed here. I have met with upper management, etc. I want to make sure all views on this product are covered at our next meeting.

Best,
FT71

Hi FT71
I voted no:

The reason is very simple - my account size allows me to trade the emini - so why change !!.



rgds
mengelbrecht

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I'm reminded of https://futures.io/elite-circle/4861-comparing-index-futures.html bmt thread by this discussion, courtesy of Fat Tails. I'm not 100% sure if that commentary is relevant to this, but if I'm on the right track here, then the new contract should have proportional tick value and lower commissions such that it does not severely impact expectancy of the trader in favor of the broker, dealers and/or the exchange. It would be unfortunate if it resembled mini spy options that leave all fees and commissions as their bigger brother and just offer smaller leverage, negatively impacting trading profitability.

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I voted 'yes', but I agree with the above comments.. No one would be interested if the fees and commissions are not reduced, if not correspondingly, then by a fair amount. I may be wrong but in retail spot forex, the spreads are relative to the size of the contracts.. so the spread for a 1 lot is 10x that for a mini-lot (0.1 lot), and 100x that for a micro-lot (0.01 lot).

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FuturesTrader71 View Post
Can those of you who voted "no" please post a bullet list stating why not?

In the UK the spread betting platforms offer better features, flexibility and tax regimes.
For UK and Europeans the FDAX is a far better instrument than ES anyway (imho).
Otherwise concerns would be the sort of liquidity issues and traps that users of the micro M6E have experienced.

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ratfink View Post
For UK and Europeans the FDAX is a far better instrument than ES anyway (imho).

"Better" would be a matter of opinion, as you state--but a fact is that the DAX is a much more volatile index that has much higher exchange margins for that very reason. It is not comparable at all to the ES, and tends to behave more like crude oil from my (limited) observation of it.

FESX, the Euro Stoxx 50, is a much more similar instrument to ES than the DAX, and would be a much more suitable substitution for the ES than the DAX, IMO. But many European traders like to trade the ES, so it's kind of a moot point anyway, for someone looking for a micro sized product.

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I would imagine commissions for the Micro ES would be quite similar to the CME FX Micro products like M6E.

You can certainly argue that commission structure is "poor".

But, you an also argue commission has little to do with what I view as the objective of the micro's. Micro's are a good instrument for traders new to futures to cut their teeth on. And facts are, most of those traders lose money. Facts are also that commission costs are not a majority percentage of those losses.

So newer futures traders would be well served to trade a Micro product, even if the commission structure seems expensive. It will still almost certainly be a better learning instrument, allowing their account funds to go a longer distance and thus provide them with more education and a higher chance of overcoming the odds before failure.

Once you have a positive expectancy then a Micro product isn't the most appropriate instrument in most cases. No one is arguing this point.

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I agree with @Big Mike -- the whole premise behind a micro product is to take small risks. Who cares if the commission as a percentage is much higher, if the risk as a percentage of account is much lower? But it's not surprising, given that many people will argue over $0.10 per R/T per contract on commissions on the emini when a single tick per contract costs 125X that amount, and then make a preventable mistake that costs 8 ticks per contract, or 1000X that amount they fought so hard for. For high volume trading strategies with a net profit of < 1 tick per contract where the money comes from thousands of RTs per day, then commissions become important. Unless that is the case, the trader should be more concerned with the bigger picture.

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I think a micro ES would be fine, but if the commission and fee structure is the same then I think it's only useful if you want to trade larger moves with smaller cash risks/rewards than the ES. However, if that's the case then you may as well trade SPY, which is extremely liquid with tight spreads, but then you lose all of the advantages of trading futures.

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and then what's next? 1/10 and then 1/100. and after that maybe we can have some options on top of that? I have a hard time to find good reasons to create such an instrument. the derivatives we have today are already way too big. creating probably the biggest threat for financial markets.

who would trade such a thing anyway? somebody new to futures to reduce the risk? I say sim trading the "normal" es would achieve the same or even more realistic results (liquidity concerns). for retailers to hedge a position? buy a cfd, etf or options. there're already more than enough possibilities out there.

to be honest, the only one I see who would profit are the brokers.

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Best piece of advise I got when starting out was to use SPY before touching the ES and this is an ideal alternative.
In fact it's better because of the trading hours, also less tax reporting hassles of SPY as a bonus. I realize that a large number of folks are scalping for a few ticks and this won't interest them.

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Kona View Post
Best piece of advise I got when starting out was to use SPY before touching the ES and this is an ideal alternative.
In fact it's better because of the trading hours, also less tax reporting hassles of SPY as a bonus. I realize that a large number of folks are scalping for a few ticks and this won't interest them.

@Kona,

1) What do you mean "better because of the trading hours"?
2) " " "less tax reporting hassles"...?

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Kona View Post
Best piece of advise I got when starting out was to use SPY before touching the ES and this is an ideal alternative.
In fact it's better because of the trading hours, also less tax reporting hassles of SPY as a bonus. I realize that a large number of folks are scalping for a few ticks and this won't interest them.

SPY is not an option for beginners with a small account.

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Kona View Post
Best piece of advise I got when starting out was to use SPY before touching the ES and this is an ideal alternative.
In fact it's better because of the trading hours, also less tax reporting hassles of SPY as a bonus. I realize that a large number of folks are scalping for a few ticks and this won't interest them.

I agree that traders should probably start swing trading equities. It's slower, less leverage, and a good way to get a grasp of trading.

The problem with SPY and equity trading is of course the Pattern Day Trader rule. So most new traders are small traders, and they will immediately move to something else since they don't want to fund with 25k. If they would swing trade it would be fine.

Most of the focus from "trading educators" these days... aka rooms, signal services, etc, seems to be on scalping. So unfortunately a lot of newbies think that scalping is what they should do. Combine that with leverage on ES, and brokers that let people open accounts with low intraday margins, and really the trader is being setup to fail.

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I voted no, because I think the NQ at $5 a tick is pretty close to a micro ES at $2.50 a tick, and has pretty good liquidity. If I wanted a smaller tick size, the M6E would be better at $1.25 a tick.

I would think it would be a good contract for those wanting to start out (!!) trading the ES. You could steer them to the micro-ES in the beginning.

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lifeguardsteve88 View Post
I was going through some webinars yesterday and heard FT71 mention that he uses a 2000 volume chart for the ES. I'm just beginning to work up my strategies, and although I am happy with how things are going so far, I can't say I'm anywhere near locked in on them yet. I've been using mostly time or tick chart variations with my strategies with moderate success. But something I never even considered before was how different chart types (range, volume, tick, time) might have such a drastic effect on results of the strategy you are using (or trying to formulate). I never considered trying a volume chart before.... but I figured if FT71 uses a 2000 volume chart on the ES, then it's definitely worth giving it a try. Now I know it's only been one day, but the 2000 volume chart is just making me look like a rock star!!! I have no illusions that I have found the missing "key" to my particular strategy.... but it has opened this beginners eyes to considering All the variables involved that may be helping or hindering a particular strategy.

Many thanks to @FuturesTrader71 and all the other great folks on futures.io (formerly BMT) that give of their time and knowledge for the benefit of others.

Cheers!

I think you posted in the wrong thread.

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Big Mike View Post
I think you posted in the wrong thread.

Mike

I think you are right! perhaps the FT71 AMA thread would have been better? Sorry, Mike, please correct that for me, or tell me how I may remedy my mistake.

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I think you are right! perhaps the FT71 AMA thread would have been better? Sorry, Mike, please correct that for me, or tell me how I may remedy my mistake.

Just cut/paste the post to AMA thread if you want FT71 to see it and/or reply to it. He monitors other threads but generally only replies in the AMA thread.

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Anyone that voted "no" to the poll, would you trade it at 1/10th the size ($1.25/tick)?

I am guessing it wouldn't change the participation level much to go downward on tick dollar value. In fact I think participation might increase at 2.50 tick instead of 1.25/tick.

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Silvester17 View Post
and then what's next? 1/10 and then 1/100. and after that maybe we can have some options on top of that? I have a hard time to find good reasons to create such an instrument. the derivatives we have today are already way too big. creating probably the biggest threat for financial markets.


Big Mike View Post
Anyone that voted "no" to the poll, would you trade it at 1/10th the size ($1.25/tick)?

I am guessing it wouldn't change the participation level much to go downward on tick dollar value. In fact I think participation might increase at 2.50 tick instead of 1.25/tick.

Mike

Some Quick points:

If it costs me say $5 round trip for an ES, then $1 round trip for $2.50/tick or $.50 RT for $1.25/tick is all same thing, I just have smoother control over my position in latter cases. I may pay more due to slippage, but with HFT more likely to increase than decrease (bringing liquidity) that may be less of a concern. I just hope the exchanges can give good pricing on Micro ES, but if not then yeah, Mike is right.

M6E and related don't have options, but there is little point, you can get the same greeks with options on ETFs like FXE. (and better liquidity) I assume Micro-ES would work the same way.

Separately, for giggles I put a 6E and M6E side by side in volume charts. To get them to look similar, the volume ratio is about 30:1. E.g. 3000 Volume for 6E looks a lot like a 100 Volume M6E. (At least this week.)

Guess what... The volume profiles are pretty much the same, but for those of us who look at Bid/Ask indicators, (Such as the Gomi toolset) the M6E looked a lot BETTER than the 6E.

I realize "better" is subjective, but especially with cumulative volume (GomCD or CDHA) you can really see when it gets bought up and sold off. This makes sense. Only speculators, albeit small ones, are in the M6E, whereas there is a lot more hedging and algos in the 6E, hence more noise.

That was not what I expected and I haven't looked at it for a long enough time yet, but I found it interesting nonetheless.

Lastly, I was messing around with the other M6 contracts, it looks like M6S (Swiss franc) is going the way of the dodo bird.

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I would always recommend you chart the regular instrument (ie ES or 6E) vs the micro instrument. Your DOM can be the micro instrument but you should be concentrating your efforts on reading the price action and order flow of the regular sized instrument for most discretionary traders.

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Big Mike View Post
Anyone that voted "no" to the poll, would you trade it at 1/10th the size ($1.25/tick)?

I am guessing it wouldn't change the participation level much to go downward on tick dollar value. In fact I think participation might increase at 2.50 tick instead of 1.25/tick.

Mike

I think it would be better. I think the distance between contract price/tick should be a decent distance so more traders would trade there before moving on to the NQ/YM/ES.

It is like the E7, which is not an easy contract to trade. It is not nice to trade at $6.25/tick, IMHO, because traders would move to the 6E.

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Why is a new contract type needed, rather then redefining the existing one? With stocks splits happen regularly.

- Maarten

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Big Mike View Post
I would always recommend you chart the regular instrument (ie ES or 6E) vs the micro instrument. Your DOM can be the micro instrument but you should be concentrating your efforts on reading the price action and order flow of the regular sized instrument for most discretionary traders.

Mike

I agree. It's just that I saw something that I hadn't considered, which might be useful.

I also agree with your maxim not to change things more than once every 2 weeks. The data from Gomi indicators on M6E may or may not translate into additional information worth my attention. I am just at the start of a process and they may not "make the cut."

For now I have 2 charts, but if I still see value later, then with a bit of hacking I can put gomi indicators for more than one instrument on a single chart. That might prove interesting, like a short term COT report. (or a random noise generator!)

And (see also below) I am only talking about 6E/M6E. I have no idea if other micros have enough volume to give meaningful signals, and think perhaps not, especially with one being retired.



traderwerks View Post
I think it would be better. I think the distance between contract price/tick should be

a decent distance so more traders would trade there before moving on to the NQ/YM/ES.

It is like the E7, which is not an easy contract to trade. It is not nice to trade at $6.25/tick, IMHO, because traders would move to the 6E.

For clarity:

6E 125,000 Euros per contract
E7 62,500 Euros per contract
M6E 12,500 Euros per contract

I was going to try to compare the E7 vs M6E volume, but I can't even get the front month symbol for E7 on the symbol lookup page of the IQFeed website. I have an email in to their support, but I think that tells you something already...

UPDATE:

Fixed typos above, and...

UPDATE 2:
[Gonna get this right SOMEDAY!]

Ratio of volume of 6E to M6E is ~30:1. I thought it was higher, but was looking in the wrong place.

Also found the E7 IQFeed front month symbol is @MEU13. Volume is about half M6E. But (a la Fat tail's thread above) it looks like they have the same spread, M6E usually better in fact, so you are looking at more slippage with E7 as opposed to ME6. But depending on your broker will pay more in commissions for M6E. Pay me now or pay me later I suppose...

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If the transaction costs are relative to the point value in a micro ES contract I'd trade it. Also I would want to see some good liquidity. Reason I would trade it? I could trade larger size. This would allow the trader much more flexibility in working a trade.

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(...)
It was discussed that there is a Micro ES contract (E-Micro) "coming soon" by the CME. The ES is the e-mini of the full sized SP contract, trading at 1/5th value, and it is thought the Micro ES will trade at 1/5th the size of the ES.

Would be interesting to hear if there's an update on this. Given that the CME hasn't announced anything in the last month and a half (not even a launch date months in advance), I can't help but think that FuturesTrader71 spoke a little bit too soon.

I imagine that if the CME has decided internally to launch a micro ES contract and communicate this to brokers, an official announcement would be made sooner than later. At least, I hope they are technologically savvy enough to copy an existing product within two months.

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Too early imo.

They were taking the pulse the way I understood it, could be quite a while before any result.

But if FT has more news or insight hopefully he can share.

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Would be interesting to hear if there's an update on this. Given that the CME hasn't announced anything in the last month and a half (not even a launch date months in advance), I can't help but think that FuturesTrader71 spoke a little bit too soon.

I imagine that if the CME has decided internally to launch a micro ES contract and communicate this to brokers, an official announcement would be made sooner than later. At least, I hope they are technologically savvy enough to copy an existing product within two months.

I would understand why the CME has attempted to try and do emini currencies, because of the large FX cash biz that they might consider a competition. This has proved to be a useless exercise, BTW.

However, with the popularity and liquidity of the ES, I have no idea what would be the incentive of the CME for such a product like micro ES, especially when they have no competition around for such a thing.

Lastly, the CME is there first and foremost to serve the institutional clientele.
I don't think their priority is to create additional retail products because their minis (outside the indicies) don't gain the anticipated liquidity.

Having said everything above, I could be wrong and these are only my thoughts.

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Big Mike View Post
Too early imo.

They were taking the pulse the way I understood it, could be quite a while before any result.
(..)

Ah I see, then I misunderstood. I figured the 'coming soon' implied they're already working on it (at least a little bit), but it was more an informal poll it seems.


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(...)
However, with the popularity and liquidity of the ES, I have no idea what would be the incentive of the CME for such a product like micro ES, especially when they have no competition around for such a thing.

Lastly, the CME is there first and foremost to serve the institutional clientele.
I don't think their priority is to create additional retail products because their minis (outside the indicies) don't gain the anticipated liquidity.
(...)

That's true Matt.

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mattz View Post
I would understand why the CME has attempted to try and do emini currencies, because of the large FX cash biz that they might consider a competition. This has proved to be a useless exercise, BTW.

However, with the popularity and liquidity of the ES, I have no idea what would be the incentive of the CME for such a product like micro ES, especially when they have no competition around for such a thing.

Lastly, the CME is there first and foremost to serve the institutional clientele.
I don't think their priority is to create additional retail products because their minis (outside the indicies) don't gain the anticipated liquidity.

Having said everything above, I could be wrong and these are only my thoughts.

In a webinar on financialjuice.com this week, FT said recently it was slow going.

Question for you Matt: How do you think it would impact your biz?

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In a webinar on financialjuice.com this week, FT said recently it was slow going.

Question for you Matt: How do you think it would impact your biz?

Could you be more specific? If you mean the actual micro lots have become real?
It would have zero impact, as it would have no liquidity, but a great tool for guys with little funds who want to play around throughout the day.

Contracts have to make sense. for example, let's say the ES, notional value is $85K (rounding up 1700x50 a point)
And the average comish is around 1 per side plus exchange, etc
So now you buy a basket of $85K that you bought under 5 bucks.
This would make a good hedging tools, a good spec tool, etc
So the notional value and pricing of a contract has to make sense otherwise
the product does not take off.

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mattz View Post
Could you be more specific? If you mean the actual micro lots have become real?
It would have zero impact, as it would have no liquidity, but a great tool for guys with little funds who want to play around throughout the day.

Contracts have to make sense. for example, let's say the ES, notional value is $85K (rounding up 1700x50 a point)
And the average comish is around 1 per side plus exchange, etc
So now you buy a basket of $85K that you bought under 5 bucks.
This would make a good hedging tools, a good spec tool, etc
So the notional value and pricing of a contract has to make sense otherwise
the product does not take off.

Yes, that is what I mean.

That is an interesting perspective, not one that I expected. My thought was that it could be helpful to you. With an extra rung at the bottom of the ladder, more of us little guys would be better able to graduate to bigger players.

From my perspective, smaller contracts would help to linearize the situation. If I were day trading stocks, I could trade anywhere down to a single share and gradually move up as my psychology & risk management plan allowed. Not so much with futures. Also if I were a medium sized payer, realizing that is a subjective term, I could hold positions longer without losing sleep.

I should add that there is a cost to micro contracts besides the sometimes wider spread. If I have a scaling strategy, that multiplies the number of contracts I need by 3 or 4 off the bat, and if I start to work my size towards a full ES or 6E strategy, that's a whole lotta contracts. For the same delta, I'm paying a lot more. The exchange linearizes their fees (their fee for M6E is 1/10 6E) but so far the all in prices I see are higher. If you look at the commission per trade, someone is making some money on those little contracts.

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Hello,

Will there be any type of smaller index futures contracts coming soon? Perhaps a Micro contract?

As we know, the mini contract is of somewhat a substantial size right now (SP500 Value 2035 x $50 a point = $102,000 contract)

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  #58 (permalink)
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nope -- and if there were, the liquidity would be awful .. just look at some of the other micros

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It would be helpful to aspiring traders such as myself if the CME would offer an S&P 500 micro, but understand their concern about liquidity.

One reason micro futures may be less popular than expected is due to competition with retail sized commodity and stock index CFDs. Traders can use these to improve their skills before "moving up" to full size futures contracts. I understand these instruments are popular in Europe and Asia. Unfortunately CFDs are not available to US residents due to securities regulations. For example, Interactive Brokers offers a suite of global stock index CFDs with notional values in the 10-20K range, but US residents are banned from using them.

I think it would be advantageous to both traders and the futures exchanges if this ban were finally lifted. That way newbie traders here in the USA would have access to the smaller contracts they need for proper risk management. Meanwhile the CME could eliminate their unsuccessful micro futures offerings and focus on professional traders and institutional clients.

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Totally agree with Schultz15.Here I can trade eminis CFD just from 1 USD per whole index point.Adding new contracts make no sense for 90 % of traders.As Eurex and KRX do it recently... it also not change too much.Of course it is some kind of success -25k for Kospi 200 Mini and 10k for Fdax mini is very good... but also volume of ,,big'' brother are decreasing becouse some traders migrate there - and that NOT attract new player's.From exchange and brokers poing of view it not provide anything new,its just complicate bussiness.
Lift that strange ban on CFD or trade SPY with margin - then migrate to ES.Simple as that

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  #61 (permalink)
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Dow cfd's and no commissions with a 1 pt spread. 500:1 leverage if you want it.

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Dow cfd's and no commissions with a 1 pt spread. 500:1 leverage if you want it.

If you are outside the US and want to trade on an unregulated/decentralized market.

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  #63 (permalink)
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It is regulated, Mike. Might be concerns for bigger traders, although I believe they would idependently hedge large traders' positions I don't trade large sizes, just £5/ point o the Dow). I get instant execution on my trades and they've never tried to rob me, freeze the quotes etc, but you have to be selective when choosing. I think the arbitrage algos, the ability to counter or offset risk and the liquidity channels are so good now that the broker's risk as counterparty is far less than it used to be. I thought US citizens could open CFD accounts but not spread bet accounts? Maybe someone could confirm this?

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I thought US citizens could open CFD accounts but not spread bet accounts? Maybe someone could confirm this?

You can IF you are a resident outside the US. They may be regulated but they are still over the couunter. If you have a problem, you can only discuss it with the broker that took the other side of your trade.

I think CFD's are ok for learning, but get off of them as soon as you feel comfortable.

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It is regulated, Mike. Might be concerns for bigger traders, although I believe they would idependently hedge large traders' positions I don't trade large sizes, just £5/ point o the Dow). I get instant execution on my trades and they've never tried to rob me, freeze the quotes etc, but you have to be selective when choosing. I think the arbitrage algos, the ability to counter or offset risk and the liquidity channels are so good now that the broker's risk as counterparty is far less than it used to be. I thought US citizens could open CFD accounts but not spread bet accounts? Maybe someone could confirm this?

Brokers that are not regulated and registered with the CFTC and NFA are not allowed to solicit and/or hold USA customers.

Most brokers in Europe, Asia and Australia that offer CFDs, Spread Betting, etc are not registered with the above regulators. Therefore, USA guys can not use these instruments. This is as far as I know, please conduct your own due diligence.

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  #66 (permalink)
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Most brokers in Europe, Asia and Australia that offer CFDs, Spread Betting, etc are not registered with the above regulators. Therefore, USA guys can not use these instruments. This is as far as I know, please conduct your own due diligence.

Matt Z
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Yes, do you think the powerful futures exchanges in the US effectively lobby against legalising CFD trading, Matt? I guess they would lose tonnes of business.

I've never had a problem with the firms I've traded with and I find CFD's far more flexible than the fixed high leverage of futures contracts. But I'm a small fish.

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  #67 (permalink)
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Yes, do you think the powerful futures exchanges in the US effectively lobby against legalising CFD trading, Matt? I guess they would lose tonnes of business.

I've never had a problem with the firms I've traded with and I find CFD's far more flexible than the fixed high leverage of futures contracts. But I'm a small fish.

I am afraid it is not quite that simple. Not sure about the situation nowadays, but I know that prior to 2008 hedge funds used a lot of total-return swaps which essentially is exactly the same thing as a contract for difference (CFD). By using a TRS the hedge funds could essentially side-step regulatory oversight and enter into positions without affecting the market. However, by trading off-exchange you have counterparty risk in that the person on the other side of the swap may not be able to make a payment.

Now, imagine several financial institutions had exposure to Lehman Brothers via some TRS trades (not sure how big their TRS book was) and Lehman goes bankrupt. Suddenly this bankruptcy places a lot of other financial institutions in difficulty since suddenly they are very unsure of the potential losses that need to be written off and this could lead to financial institutions requiring additional reserves. Thus, a situation that could most likely exacerbate a crash in the financial markets. If you investigate LTCM and the uncertainty other financial institutions had about their counterparty exposures during that collapse, you may begin to understand why this is such a big deal.

Several US-based managers also managed to avoid regulatory oversight with their hedge funds as well, i.e. they registered as advisors to an offshore management company which effectively managed the fund. In this example, not the fund, nor the manager, nor the investments were properly regulated and of course the widespread use of derivatives by hedge funds was blamed for the 2008 crash.

Thus it should be no surprise that the US government enacted strong regulation to neutralise the perceived threat to the economy. Whether or not that is correct is anyone guess.

With regards to trading CFDs vs futures, it is a no-brainer for me. I would always choose the least amount of counterparty risk since a broker bankruptcy costs you your entire account. A recent example is Alpari - I am sure you can find others as well. If you are willing to live with that risk, then CFDs may be right for you.

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  #68 (permalink)
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I am afraid it is not quite that simple. Not sure about the situation nowadays, but I know that prior to 2008 hedge funds used a lot of total-return swaps which essentially is exactly the same thing as a contract for difference (CFD). By using a TRS the hedge funds could essentially side-step regulatory oversight and enter into positions without affecting the market. However, by trading off-exchange you have counterparty risk in that the person on the other side of the swap may not be able to make a payment.

Now, imagine several financial institutions had exposure to Lehman Brothers via some TRS trades (not sure how big their TRS book was) and Lehman goes bankrupt. Suddenly this bankruptcy places a lot of other financial institutions in difficulty since suddenly they are very unsure of the potential losses that need to be written off and this could lead to financial institutions requiring additional reserves. Thus, a situation that could most likely exacerbate a crash in the financial markets. If you investigate LTCM and the uncertainty other financial institutions had about their counterparty exposures during that collapse, you may begin to understand why this is such a big deal.

Several US-based managers also managed to avoid regulatory oversight with their hedge funds as well, i.e. they registered as advisors to an offshore management company which effectively managed the fund. In this example, not the fund, nor the manager, nor the investments were properly regulated and of course the widespread use of derivatives by hedge funds was blamed for the 2008 crash.

Thus it should be no surprise that the US government enacted strong regulation to neutralise the perceived threat to the economy. Whether or not that is correct is anyone guess.

With regards to trading CFDs vs futures, it is a no-brainer for me. I would always choose the least amount of counterparty risk since a broker bankruptcy costs you your entire account. A recent example is Alpari - I am sure you can find others as well. If you are willing to live with that risk, then CFDs may be right for you.

Interesting, thanks for the insight. I think I understand about OTC derivatives, but surely the banks still make trades and markets this way and always will? In the UK we have the FCS (financial compensation scheme) for retail investor's funds that are held by the broker in tier 1 UK banks. This means that you're covered up to £50,000 and the broker cannot touch client deposits (something that MF Global happily did). As far as I'm aware US citizens are not covered if a futures broker/ fcm goes under?

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In the UK we have the FCS (financial compensation scheme) for retail investor's funds that are held by the broker in tier 1 UK banks.

Do you mean the FSCS (https://en.wikipedia.org/wiki/Financial_Services_Compensation_Scheme)

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Yes

https://www.fscs.org.uk/

Firm has to be FCA regulated (financial conduct authority) for the client to be covered.

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Interesting, thanks for the insight. I think I understand about OTC derivatives, but surely the banks still make trades and markets this way and always will? In the UK we have the FCS (financial compensation scheme) for retail investor's funds that are held by the broker in tier 1 UK banks. This means that you're covered up to £50,000 and the broker cannot touch client deposits (something that MF Global happily did). As far as I'm aware US citizens are not covered if a futures broker/ fcm goes under?

Yes, you do raise a valid concern with regards to FCM protection in the US. Typical protection is provided by keeping the customer monies segregated from the broker's cash. Should a broker violate that rule, then of course your account is at risk. However, this applies to both brokers dealing in listed futures, as well as CFD brokers. While it is always preferable to have government protection, i.e. FSCS, the protection is usually limited to smaller accounts.

However, CFD brokers (FX and spread-betting brokers included) have another risk to address as well. A regular broker passes on his orders to the exchange and theoretically never has any risk on his accounts. A CFD broker will aggregate client orders and once his exposure exceeds a certain threshold, he will hedge the exposure in the market. This does however mean that the broker has a position in the market and needs to honour any losses his positions incur. Usually these losses will be recouped from client accounts, i.e. the client loses money and the broker transfers that money to his counterparty. Should the client not have enough money and should the broker not be able to liquidate the position fast enough, the broker will lose money. Refer to the following link for more detail - Alpari UK currency broker folds over Swiss franc turmoil - BBC News


Quoting 
"Where a client cannot cover this loss, it is passed on to us," it said. "This has forced Alpari (UK) Limited to confirm today that it has entered into insolvency."

The above quote comes from the article and in effect explains that Alpari was properly hedged, i.e. it was not trading against its customers. In effect, Alpari did nothing wrong. Its customers just were too exposed and Alpari had too little cash in reserve to cover the losses from the extreme move.

With a normal brokerage, you should not be exposed to this type of risk. The FCM is never exposed to market risk and thus in theory should never be going bankrupt on an extreme move like this. However, I am not sure what would happen if an event like 1987 were to reoccur and a FCM could not make its payment to the exchange in the event that its reserves were insufficient to cover customer losses. Perhaps someone else could clarify that item.

Thus, in summary, you are always exposed to the risk of fraud / misappropriation of assets with any broker, but a CFD broker is also exposed to market risk. Government protection can provide some cover, but is usually aimed at smaller (retail) accounts. Therefore, as with all things, it is up to the individual to weigh the pros and cons and decide which vehicle (or broker) is correct for them.

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Does anyone know and can clarify if it's US residents or US citizens that are banned from CFDs?

I'm a US citizen and resident for now, but the latter may change soon.

Thanks!
-Bob

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grausch View Post
Yes, you do raise a valid concern with regards to FCM protection in the US. Typical protection is provided by keeping the customer monies segregated from the broker's cash. Should a broker violate that rule, then of course your account is at risk. However, this applies to both brokers dealing in listed futures, as well as CFD brokers. While it is always preferable to have government protection, i.e. FSCS, the protection is usually limited to smaller accounts.

However, CFD brokers (FX and spread-betting brokers included) have another risk to address as well. A regular broker passes on his orders to the exchange and theoretically never has any risk on his accounts. A CFD broker will aggregate client orders and once his exposure exceeds a certain threshold, he will hedge the exposure in the market. This does however mean that the broker has a position in the market and needs to honour any losses his positions incur. Usually these losses will be recouped from client accounts, i.e. the client loses money and the broker transfers that money to his counterparty. Should the client not have enough money and should the broker not be able to liquidate the position fast enough, the broker will lose money. Refer to the following link for more detail - Alpari UK currency broker folds over Swiss franc turmoil - BBC News



The above quote comes from the article and in effect explains that Alpari was properly hedged, i.e. it was not trading against its customers. In effect, Alpari did nothing wrong. Its customers just were too exposed and Alpari had too little cash in reserve to cover the losses from the extreme move.

With a normal brokerage, you should not be exposed to this type of risk. The FCM is never exposed to market risk and thus in theory should never be going bankrupt on an extreme move like this. However, I am not sure what would happen if an event like 1987 were to reoccur and a FCM could not make its payment to the exchange in the event that its reserves were insufficient to cover customer losses. Perhaps someone else could clarify that item.

Thus, in summary, you are always exposed to the risk of fraud / misappropriation of assets with any broker, but a CFD broker is also exposed to market risk. Government protection can provide some cover, but is usually aimed at smaller (retail) accounts. Therefore, as with all things, it is up to the individual to weigh the pros and cons and decide which vehicle (or broker) is correct for them.

Thanks for a clear explanation. Yes, CFD brokers, as counterparty are taking on risk (a good firm can hedge most of this out through matching clients positions against each other, as far as I'm aware, in this respect they are acting partially as an exchange) although their systems are far more sophisticated than they used to be (I know this from experience). I think there are pros and cons as you say and as long as you trade deep liquid markets using CFD's then the service can be a good alternative to the primary derivatives exchanges. The Swiss Franc shock cost Interactive Brokers a few million I believe and there is always risk as market maker (they are for their FX offering), so a firm that has a larger client base and is well capitalised is important.

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Does anyone know and can clarify if it's US residents or US citizens that are banned from CFDs?

I'm a US citizen and resident for now, but the latter may change soon.

Thanks!
-Bob

US Residents regardless if they are citizens or not.

If you are a US citizen residing outside the US, you can trade CFD's

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US Residents regardless if they are citizens or not.

If you are a US citizen residing outside the US, you can trade CFD's

I did a bit of research myself, and I believe you are correct, BUT

-I'd need to find a broker willing to take on a US citizen. (not all will)

-CFDs aren't perfect, they can have liquidity issues among other problems.

That said, if anyone knows of a broker that can offer a pseudo micro ES (or other futures contract) I'm all ears.

Also, I wonder what the story is if a US resident owned an overseas LLC. (or whatever they would call it in the host country; I believe LLC is a US specific small corporate structure) Could the US resident trade CFDs out of that?

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I did a bit of research myself, and I believe you are correct, BUT

-I'd need to find a broker willing to take on a US citizen. (not all will)

-CFDs aren't perfect, they can have liquidity issues among other problems.

That said, if anyone knows of a broker that can offer a pseudo micro ES (or other futures contract) I'm all ears.

Also, I wonder what the story is if a US resident owned an overseas LLC. (or whatever they would call it in the host country; I believe LLC is a US specific small corporate structure) Could the US resident trade CFDs out of that?

I was struggling to find any concrete evidence that US citizens not residing in the US are allowed to trade CFDs. Would you mind sharing a link? I can offer the following: Section 3(a)(65) of the Securities Exchange Act of 1934, as added by the Dodd-Frank Act, available at: https://www.sec.gov/about/laws/sea34.pdf, cross-referencing Section 1a(18) of the Commodity Exchange Act, available at: https://www.law.cornell.edu/uscode/html/uscode07/usc_sup_01_7_10_1.html. On the Commodity Exchange Act search for "Eligible contract participant". Based on this I could not find anything that would exclude US citizen unless you are HNW.

With regards to brokers accepting US clients, either via an overseas LLC or via direct investment in the case of a non-resident US citizen, you run into the FATCA problem. All financial institutions are required to collect information on the ultimate beneficial owners (with some exceptions) of entities or persons having accounts with them. Should you not have any US-clients, then the FATCA reporting is less complex. Should you have US-clients, then you need to ensure you can correctly report in terms of FATCA. In order to minimize regulatory risk, several financial institutions have decided not to accept US clients. Thus, even if it were legal you may struggle to find a CFD broker with the necessary systems in place to accept you as a client.

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I did a bit of research myself, and I believe you are correct, BUT

-I'd need to find a broker willing to take on a US citizen. (not all will)

-CFDs aren't perfect, they can have liquidity issues among other problems.

That said, if anyone knows of a broker that can offer a pseudo micro ES (or other futures contract) I'm all ears.

Also, I wonder what the story is if a US resident owned an overseas LLC. (or whatever they would call it in the host country; I believe LLC is a US specific small corporate structure) Could the US resident trade CFDs out of that?

I have accounts with IG & FXCM, but they are small. I used them for learing, and I do not trade with them anymore. I also have not had a problem with FACTA, but I have not opened any bank account since FACTA came out. Just me I guess.

Here are the stock index markets https://www.fxcm.com/uk/markets/cfds/stock-indices/ they use names like SP500 for the ES and FRA40 for the CAC40.

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I have accounts with IG & FXCM, but they are small. I used them for learing, and I do not trade with them anymore. I also have not had a problem with FACTA, but I have not opened any bank account since FACTA came out. Just me I guess.

Here are the stock index markets https://www.fxcm.com/uk/markets/cfds/stock-indices/ they use names like SP500 for the ES and FRA40 for the CAC40.

Thanks. I see you are resident in Taiwan, therefore I assume FXCM would have done their due diligence and concluded you are allowed to trade CFDs. Would be nice to find the actual exemption in the law though...

FATCA won't really present much of a problem for the end-client. You would already have provided all of the needed documentation as part of the normal KYC documentation when opening your account. Financial institutions however faced a completely different scenario in that being non-compliant with FATCA meant you could incur pretty large penalties. Therefore some smaller financial institutions decided to rather not accept US clients and reduce both their risk and reporting requirements. Larger financial institutions or those heavily dependent on US-customers would just have ensured that their systems were ready to deal with the requirements of FATCA.

With regards to the offshore LLC, since the broker will have info on the ultimate beneficial owner, I am sceptical whether a broker will allow trading CFDs if the owner is a US-resident. While I am no legal expert, governments usually take a dim view of transactions aimed at circumventing laws.

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I have accounts with IG & FXCM, but they are small. I used them for learing, and I do not trade with them anymore. I also have not had a problem with FACTA, but I have not opened any bank account since FACTA came out. Just me I guess.

Here are the stock index markets https://www.fxcm.com/uk/markets/cfds/stock-indices/ they use names like SP500 for the ES and FRA40 for the CAC40.

THANKS! I'll give 'em a call when I move. (wife just got a job in Istanbul) I suppose the worst they can do is say no...

BTW, can you tell me what the minimum trade size is for ES? The real mini will move $12.50 per tick, $50 per point (per contract) What's up with their CFD? I was a little confused by their chart.

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THANKS! I'll give 'em a call when I move. (wife just got a job in Istanbul) I suppose the worst they can do is say no...

BTW, can you tell me what the minimum trade size is for ES? The real mini will move $12.50 per tick, $50 per point (per contract) What's up with their CFD? I was a little confused by their chart.

If you're based in Istanbul I think you can trade with most european/ uk cfd companies (I think) ADS securities, London Capital Group, Core Spreads and LMAX are all good. The minimum would be £1/ per ES point with no commissions but 0.4 in spread.

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THANKS! I'll give 'em a call when I move. (wife just got a job in Istanbul) I suppose the worst they can do is say no...

BTW, can you tell me what the minimum trade size is for ES? The real mini will move $12.50 per tick, $50 per point (per contract) What's up with their CFD? I was a little confused by their chart.

@grausch did make some really good points, esp. about due diligence. You do need to be a "bona fide" resident outside the US, just an address in Turkey will not cut it. That means photo ID residence card, bills in your name, etc.

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  #82 (permalink)
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ZCars View Post
If you're based in Istanbul I think you can trade with most european/ uk cfd companies (I think) ADS securities, London Capital Group, Core Spreads and LMAX are all good. The minimum would be £1/ per ES point with no commissions but 0.4 in spread.

So if the minimum bet is a pound per point, that's like 1/30th of an E-Mini, even smaller than the proposed E-Micro. Cool beans! Spread not too bad either; ES has a 'real' spead of .25 points, so I'm only paying an additional .15 point.

It looks from your image like I'd need to trade using their interface. Do you know if they support trading direct from a platform, e.g. Ninja?


traderwerks View Post
@grausch did make some really good points, esp. about due diligence. You do need to be a "bona fide" resident outside the US, just an address in Turkey will not cut it. That means photo ID residence card, bills in your name, etc.

We'll have that. Worse case the account would have to be in the wife's name, but that shouldn't be a problem. "Honey, I shrunk the nest egg!" DoH!

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  #83 (permalink)
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It looks from your image like I'd need to trade using their interface. Do you know if they support trading direct from a platform, e.g. Ninja?

Sierra Chart is planning to offer a connection for LMAX that requires no trade minimums. LMAX is an exchange and not a dealer. They have a mini SPX 500 which is a 5th of the standard contract https://www.lmax.com/?&gclid=CPqu4Paf18oCFQsEwwodZrsEfw

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  #84 (permalink)
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ZCars View Post
It looks from your image like I'd need to trade using their interface. Do you know if they support trading direct from a platform, e.g. Ninja?

Sierra Chart is planning to offer a connection for LMAX that requires no trade minimums. LMAX is an exchange and not a dealer. They have a mini SPX 500 which is a 5th of the standard contract https://www.lmax.com/?&gclid=CPqu4Paf18oCFQsEwwodZrsEfw

Cool. But it looks like LMAX is an exchange, not OTC. Does that mean that US residents might be able to trade it after all?

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Cool. But it looks like LMAX is an exchange, not OTC. Does that mean that US residents might be able to trade it after all?

Nope. It is like trading CFDs.

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  #86 (permalink)
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ZCars View Post
It looks from your image like I'd need to trade using their interface. Do you know if they support trading direct from a platform, e.g. Ninja?

Sierra Chart is planning to offer a connection for LMAX that requires no trade minimums. LMAX is an exchange and not a dealer. They have a mini SPX 500 which is a 5th of the standard contract https://www.lmax.com/?&gclid=CPqu4Paf18oCFQsEwwodZrsEfw

While LMAX may call themselves an exchange, they are registered as a CFD broker. Refer to the FCA register here - https://register.fca.org.uk/s/. The London Stock Exchange is also registered with the FCA, and their registration provides the example of what an exchange registration should look like - https://register.fca.org.uk/s/.


bob7123 View Post
Cool. But it looks like LMAX is an exchange, not OTC. Does that mean that US residents might be able to trade it after all?

@Balanar is right. Since LMAX is not an exchange, their product is by default a CFD/swap and thus OTC.

Another way of looking at it is that an exchange-traded instrument has its price determined by market participants and the exchange is not involved in setting the price of the ES. If the ES trades away from fair value other market participants can arbitrage the difference away, so it will track the SP500, but the exchange is not ensuring that the price track the index. All of your CFD brokers provide their participants with the price, as well as, the bid-ask spread. They in essence need to track the index otherwise they will be on the wrong side of arbitrage transactions.

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Exactly like @grausch say's.

Also... it is funny when ,,exchange'' act as a broker ( you can directly open account with them) .Also their clearing model is ... interesting

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Tommip View Post
Exactly like @grausch say's.

Also... it is funny when ,,exchange'' act as a broker ( you can directly open account with them) .Also their clearing model is ... interesting

LMAX is different in that it offers a neutral venue and takes a commission. They have variable spreads which reflect liquidity variations. They do not act as counterparty as the other market participants and liquidity providers take this. They had no losses and no liability during the Swiss Franc fracas, for example (unlike IG and Interactive Brokers) because they held no risk. They are neutral and great for trading the Dax at 1 euro/ point and a spread of 0.6/7 usually.

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Balanar View Post
Nope. It is like trading CFDs.


grausch View Post
While LMAX may call themselves an exchange, they are registered as a CFD broker. Refer to the FCA register here - https://register.fca.org.uk/s/. The London Stock Exchange is also registered with the FCA, and their registration provides the example of what an exchange registration should look like - https://register.fca.org.uk/s/.

@Balanar is right. Since LMAX is not an exchange, their product is by default a CFD/swap and thus OTC.

Another way of looking at it is that an exchange-traded instrument has its price determined by market participants and the exchange is not involved in setting the price of the ES. If the ES trades away from fair value other market participants can arbitrage the difference away, so it will track the SP500, but the exchange is not ensuring that the price track the index. All of your CFD brokers provide their participants with the price, as well as, the bid-ask spread. They in essence need to track the index otherwise they will be on the wrong side of arbitrage transactions.


Tommip View Post
Exactly like @grausch say's.

Also... it is funny when ,,exchange'' act as a broker ( you can directly open account with them) .Also their clearing model is ... interesting

Thanks guys. So I guess a company can call itself an 'exchange' but that's just marketing BS. Like in that Tom Waits song, "The large print giveth, but the small print taketh away."

Still, to try out a strategy I think they could be useful, as well as making longer term trades where slippage is less of an issue & you want smaller risk exposure.

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  #90 (permalink)
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bob7123 View Post
Thanks guys. So I guess a company can call itself an 'exchange' but that's just marketing BS. Like in that Tom Waits song, "The large print giveth, but the small print taketh away."

Still, to try out a strategy I think they could be useful, as well as making longer term trades where slippage is less of an issue & you want smaller risk exposure.

Yes, could be useful, Bob

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  #91 (permalink)
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any updates on whether or not the e-micro s&p500 will be a reality?

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any updates on whether or not the e-micro s&p500 will be a reality?

Only in our dreams

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any updates on whether or not the e-micro s&p500 will be a reality?


There was a time that the CME created a bunch of micro accounts, and they have been a non-event from a liquidity standpoint. Even if one was built, I don't think anyone could trade it with the same ease as the regular E-mini SP. BTW, I don't know all the guys who work at the CME exchange, but the few that I know, they never even heard of a smaller unit size.

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bojangle View Post
any updates on whether or not the e-micro s&p500 will be a reality?

Yeah, like these other guys said. I doubt we're ever going to see an e-micro S&P. Of course, Osaka Nikkei Mini proves small sized stock index futures can be wildly popular. Maybe that's the problem. CME doesn't want to draw liquidity from their S&P Mini.

If you want to trade 24H S&P in a ~$20K notional contract size, check out Chicago's retail derivatives venue -- NADEX. $4 bid/ask spread and they charge $1 commission. DOW is better with $3 spread.

Oh wait...didn't realize you're from Canada. Geez...you can just trade CFDs! Doesn't Interactive Brokers Canada offer an S&P 500 CFD?. Well, that one's not 24H though, opens with Europe I think.

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Schultz15 View Post
Yeah, like these other guys said. I doubt we're ever going to see an e-micro S&P. Of course, Osaka Nikkei Mini proves small sized stock index futures can be wildly popular. Maybe that's the problem. CME doesn't want to draw liquidity from their S&P Mini.

If you want to trade 24H S&P in a ~$20K notional contract size, check out Chicago's retail derivatives venue -- NADEX. $4 bid/ask spread and they charge $1 commission. DOW is better with $3 spread.

Oh wait...didn't realize you're from Canada. Geez...you can just trade CFDs! Doesn't Interactive Brokers Canada offer an S&P 500 CFD?. Well, that one's not 24H though, opens with Europe I think.

IB doesn't allow Canadians to trade CFDs. Do CFDs 100% mirror the price of the S&P500 index (SPX)? A lot of them are saying they do, but when i see their charts, their prices often vary... how does that work?

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bojangle View Post
IB doesn't allow Canadians to trade CFDs. Do CFDs 100% mirror the price of the S&P500 index (SPX)? A lot of them are saying they do, but when i see their charts, their prices often vary... how does that work?

I don't have much personal experience trading CFDs since US brokers are banned from offering them (though I have traded them occasionally through offshore brokers that will take US residents).

Regarding the prices being off, of course with stock index futures there is a premium which decays over time to the cash price at expiration. A bit different with CFDs in that they charge a small interest fee called a "swap" when the contract is "rolled over" to the next trading day. This creates cash price differences. Also, not being traded on a formal exchange like futures, there may be differences in liquidity and bid/ask spreads for the CFD depending on the broker you are trading with.

If interested in checking out CFDs, maybe start with Gain Capital (Forex.com) or Oanda. These are the only two retail forex/CFD brokers with market cap/cash reserves that meet CFTC regulatory standards here in the USA. They both offer CFD trading in Canada.

Good luck with your trading! ...Or if you have any luck to spare maybe send some my way

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bojangle View Post
IB doesn't allow Canadians to trade CFDs. Do CFDs 100% mirror the price of the S&P500 index (SPX)? A lot of them are saying they do, but when i see their charts, their prices often vary... how does that work?


Schultz15 View Post
I don't have much personal experience trading CFDs since US brokers are banned from offering them (though I have traded them occasionally through offshore brokers that will take US residents).

Regarding the prices being off, of course with stock index futures there is a premium which decays over time to the cash price at expiration. A bit different with CFDs in that they charge a small interest fee called a "swap" when the contract is "rolled over" to the next trading day. This creates cash price differences. Also, not being traded on a formal exchange like futures, there may be differences in liquidity and bid/ask spreads for the CFD depending on the broker you are trading with.

If interested in checking out CFDs, maybe start with Gain Capital (Forex.com) or Oanda. These are the only two retail forex/CFD brokers with market cap/cash reserves that meet CFTC regulatory standards here in the USA. They both offer CFD trading in Canada.

Good luck with your trading! ...Or if you have any luck to spare maybe send some my way

If you look back in the thread, I said I'd call LMAX when I got to Istanbul. Well, I did and now I have an account.

Of note, I asked them what would happen if I moved back to the USA, and they said if I formed an offshore corporation, They would be happy to open an account in the corporation's name. So if anyone wants to try CFDs in the US (and probably Canada) that is one route, but setting up a corporation in The Bahamas, etc. might set you back 1 or 2 K.

If anyone has info on how to set up an offshore corporation, please share, I'll probably head back to the US at some point, and I think others would like to know as well.

I am still developing my trading platform which so far has been a bottleneck to more live trading. LMAX has a Sierra Chart interface, and FXCM (London) has a Ninja interface. They are kind of the exception though. Most CFD places just use MetaTrader or a browser window. There is also a LOT of difference in the inner workings of various CFD brokers. A whole other thread devoted to that could be opened, but suffice it to say that you need to do your homework. I like LMAX because it is an actual exchange providing firm liquidity.

I'm a long time NT user, and now that I started coding for NT8, I am really impressed with the new coding tools. So much better than NT7. I may move over to FXCM, or I may continue to hack away at Sierra. It's a work in progress.

So what is the experience like? I call it paintball. Just like any pimply kid can kill a thousand soldiers in a video game, but without proper training would probably get killed the first day in real live combat, raking up $$ in sim is pretty easy for me, but taking a hit on real CME contracts, especially if I scale in or out, can be psychologically hard to handle. With CFDs, it is more of a middle road. Yes it still sucks when I loose real money, but unless I'm really reckless, loss on several tenths of a CME contract is OK by me.

In re spreads and liquidity, etc., the spreads are wider, the commissions are little higher than most CME brokers, and the margins are about proportional to $500 per CME contract rates. Some CFD shops let you set up smaller accounts, but LMAX wants you to show up with at lest $5K or preferably $10K.

Scalping is not a good idea. Besides the wider spreads, CFDs are a derivative of a derivative, so there can be some "slop in the gears" on small timeframes. It's wild to watch the algo that provides the liquidity on a DoM though. It doesn't blindly follow the CME contract. Instead it's pretty wiley and seems to "know" when to hold prices lower or higher. At least that's my subjective experience. All that said, if your average hold time is about 15 minutes or more, this isn't such a problem.

Once I'm happy with my platform, I plan on getting a bunch of live trades under my belt so I have some personal statistics to work with. Then increase the size until it's something approaching a CME contract on each scale. Once I'm OK with that, it will be time to take advantage of the better spreads & commissions on CME trading.

After that I don't plan to use the account much, but I may use it for longer timeframe strategies, or maybe even real hedging. LMAX has a Turkish lira/USD CFD with pretty tight spreads. ($10K notional value) So far the lira has been going down, but if that turns around, I could go long a few contracts and lock in a good rate on my rent for the year.


**Also, in regards to my comment that LMAX is an exchange and earlier comments that it is not: LMAX is a Multilateral Trading Facility (MTF) [Wikipedia link] which is definitely not a traditional exchange, but from the previous link: "The investment firm operating an MTF has no discretion as to how interests may interact." Some have called MTFs an "exchange lite." Like I said, do your homework.

Edit: Ironically, guess what just showed up in my inbox from David Mercer, LMAX Exchange CEO:

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  #98 (permalink)
Legendary Market Wizard
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Big Mike View Post
It was discussed that there is a Micro ES contract (E-Micro) "coming soon" by the CME. The ES is the e-mini of the full sized SP contract, trading at 1/5th value, and it is thought the Micro ES will trade at 1/5th the size of the ES.

I have been advocating the use of Micro CME FX contracts such as the M6E for a couple of years now for a way to traders to cut their teeth but still maintain fully regulated and centralized trading on the futures market, but without the more expensive $12.50/tick price.

Hopefully the Micro ES will see more liquidity than the M6E variant of the 6E EUR/USD.

Mike

And here we are, SIX YEARS LATER, and they are finally coming. Launch date May 2019
https://www.cmegroup.com/cme-group-futures-exchange/micro-futures.html

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This is wonderful news for novice traders like myself - provided that they are somewhat similar in terms of liquidity and order flow (for me personally).

Looking at it from a very "limited in experience"-POV this seems to be the perfect futures contract to replace SIM trading. With $1.25 a tick I doubt ANYONE would break a sweat trading these, but psychologically, since your money is in fact at risk, it might be perfect to train one to trade the E-minis properly.
Again, if they will be similar in liquidity, order flow, spread, slippage etc. Or in other words, if they really are a Micro of their respective Minis, that would allow one to migrate once they reached a certain level of experience/confidence

Thanks for letting us know, @SMCJB . Great news for us novices, definitely looking forward to it!

Greetings.

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MessageOfTheTape View Post
Again, if they will be similar in liquidity, order flow, spread, slippage etc. Or in other words, if they really are a Micro of their respective Minis, that would allow one to migrate once they reached a certain level of experience/confidence

I suspect HFT will ensure the liquidity is there. The order flow, and tick to tick pricing, will be completely different though. You will need to watch the eMini chart but actually trade the Micro contract same way as people do with QM (Crude eMini) and CL etc.

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