Gold Futures Too Expensive? Learn About Micro Futures

The futures market, especially the gold contract, has been a roller coaster ride lately. In just one day last Thursday, gold fluctuated by nearly $100.

Let's take a look at the minimum volatility of $Gold - main 2204(GCmain)$. We can check the contract profile on the Tiger app. The contract unit is 100 troy ounces. The minimum fluctuation unit of the GC contract is 0.1 (USD/oz), equivalent to $10. In other words, when the price goes up or down, you profit or lose at least $10.

Let’s take last Thursday’s trend as an example.

When GC contract drops from$1976 to$1892, how much would you profit if you short gold?

• 1976-1892 = 84

• 84/0.1 * 10 = $8400

On the contrary, if you long gold at $1976, you would have lost $8400. 

Is it too risky to win or lose $8400 in one day? But if you buy $E-Micro Gold - main 2204(MGCmain)$ , the exposure will be greatly reduced.

To be specific, the MGC contract unit is 10 troy ounces, which is one-tenth of the GC contract. The minimum fluctuation unit of the MGC contract is still 0.1 (USD/oz), but the value is $1. That is if you buy the MGC last Thursday when gold prices decreased $100, your exposure is only $840.

In terms of standardized elements, MGC only differs from GC in: contract value, the value of minimum fluctuation unit, and margin. The other elements are the same, such as the delivery time and trading hours. Most importantly, MGC tracks the same spot price as GC contracts, i.e. the same quality and price. So the moving trend of the two contracts is almost identical. You can simply understand that MGC is the division of GC contract, with lower margin requirement and volatility in value.

Let's look at the $Micro WTI Crude Oil - main 2204(MCLmain)$ contract.

MCL shares the same delivery item as CL contract: Texas Light Sweet Crude Oil. However, the biggest difference is that contract unit value of MCL is significantly lower. While maintaining the same leverage, the corresponding margin requirement and the value of minimum fluctuation unit arelower.

• If you can’t meet the margin requirement of CL and can't afford too much exposure, it is an excellent tool to engage in crude oil trade. 

• In addition, if you think the current market trend is uncertain and want to invest with small capital and minimum leverage, MCL is of course the best choice.

MCL is featured with 1/10 the size of the benchmark WTI futures contract and cash settlement. It lowers the threshold for crude oil futures trading.

You can look at the comparisons between MCL and the other two contracts.

What is the margin requirement for MCL contracts?

NOTE: This data is as of today and margin changes due to various factors.

Does MCL have a Trading curb?

• MCL has the same dynamic price limits (circuit breakers) as their standard-size counterparts.

Now let's look at: how many micro contracts are available for trading?

• The four major US index futures all have micro contracts.

Including: $Micro E-mini S&P 500 - main 2203(MESmain)$ $Micro E-mini Nasdaq 100 - main 2203(MNQmain)$ $Micro E-mini Russell 2000 - main 2203(MRTYmain)$ $Micro E-mini Dow Jones - main 2203(MYMmain)$

The three main advantages of the four micro index futures contracts:

1. Lower threshold for trading the most liquid stock index futures
2. More flexible trading strategies
3. High-efficient capital utilization with leverage

 Micro contracts allow small amounts of capital to control large capital positions and maximize capital efficiency. It also has lower transaction costs compared to ETF.

 For example, if we take the settlement price on May 6, 2019 , the leverage multiplier of four micro E-mini index futures is as follows:

Except for these contracts, several contracts are also available on the Tiger app:

$Micro DAX - main 2203(FDXSmain)$ $Micro EURO STOXX 50 - main 2203(FSXEmain)$ $Micro 10-Year Yield - main 2203(10Ymain)$ $Micro 2-Year Yield - main 2203(2YYmain)$$Micro 30-Year Yield - main 2203(30Ymain)$ $Micro 5-Year Yield - main 2203(5YYmain)$

Can you understand Micro Futures?

Do you think it's a good tool for you?

Share your opinions in the comment section.