Trading mini futures contracts – Here’s how it could help you in your futures trading.
If you’ve held back on trading futures, or have avoided asset classes outside of your experience, here’s something that could help to ease you in. Mini futures contracts, or smaller sized contracts, can help you familiarise yourself with a new asset class while providing the same ability to trade with your favourite strategies.
Here’s what you need to know about it.
What is futures trading?
Futures trading is the buying and selling of futures contracts – a legal agreement to purchase or sell an asset or underlying commodity at a future date – at a price determined through the open market of a futures trading exchange.
Futures contracts are traded on a wide range of traded assets including energy (crude oil), metals, equity and currency indices, just to name a few. Each contract is standardised and stipulates its quality and quantity. For instance, ICE Brent crude oil futures has a contract size of 1000 barrels (bbl), and a COMEX Gold futures contract is traded in multiples of 100 troy ounces of 995 gold.
Unlike stock trading, futures traders can trade round the clock, and choose to trade long or short on futures contracts, depending on how they anticipate the price of the underlying asset will move. It also uses leverage, allowing traders to hold a large position while putting up a small cash margin, though this also increases the risk of the trades.
While futures contracts have an expiration date that results in the delivery of goods, or a cash settlement, investors typically do not hold those contracts until its expiration date. Instead, they would trade over a shorter period to take advantage of the price movements of the underlying asset.
The move towards mini contracts
When the futures contracts on a popular US index became too capital intensive for investors, a smaller e-mini contract was launched by CME Group in 1997 at a fifth of the value of the full-sized contract. The bite-sized contracts could be traded just like the full-sized contracts with a smaller notional value and made them more accessible to a wider range of investors.
Now mini contracts are available on a much wider range of assets and indices, offered by a number of futures exchanges. The Intercontinental Exchange (ICE) is one of those futures exchanges offering mini futures contracts in US Dollar indices, Brent crude oil, and Offshore RMB, among others. ICE owns commodity and financial exchanges around the world, and 6 central clearing houses in US, Canada, Europe, Singapore and the Netherlands.
If you’re planning to trade futures, mini futures contracts might be a good way to start.
ICE Mini Brent Crude Futures
Let’s say you are looking to trade in the oil market. The US Energy Information Administration had on July 9, forecast global crude oil prices to reach US$67/bbl by end 2019, and continue at that level for 2020.
That might sound predictable enough, but a lot of volatility is expected in-between, with the US continuing to ramp up its shale oil production – albeit at a slower pace – and the OPEC continuing its pact to cut oil output to 10.3 million bbl/day into 1Q 2020. The slowdown in global oil demand growth, stemming from China and India, could also impact oil prices.
To trade Brent crude, investors could consider ICE Mini Brent Crude Futures. This cash settled contract is based on the ICE Futures Europe Brent Crude Futures contract. Traded in US dollars, the contract size is just 100 barrels, a tenth of a full-sized Brent crude futures contract.
ICE Mini US Dollar Index® Futures
What if you are more interested in investing in the fluctuations of the US dollar?
The US Federal Reserve has turned dovish in the recent FOMC meeting in June, increasing the possibility of a rate cut. “In our baseline outlook, we expect growth in the United States to remain solid, labour markets to stay strong, and inflation to move back up and run near 2 percent. Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth,” said Fed Chair Jerome Powell, hinting at the trade tensions between China and US.
“We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labour market and inflation near its symmetric 2 percent objective.” A rate cut of 25 basis points appears to be in the offing, and could weaken the US dollar.
To trade the changes in the US Dollar, you could consider trading ICE Mini US Dollar Index Futures. This mini futures contract is a cash settled contract based on the ICE US Dollar Index Futures Contract. Traded in USD, each contract is valued at US$200 times the index value, which equates to a notional value of USD19,388 at current price.
Promotional commission rates on ICE mini contracts
Phillip Futures is running a promotion on both these contracts, with a promotional commission rate of just US$1.09 per side per lot for the Mini Brent Crude Futures and US$1.08 per side per lot for the Mini U.S. Dollar Index Futures.
Phillip Futures is a leading regional brokerage for the trading of forex, global futures and commodities, and a founding clearing member of the Singapore Exchange Derivatives Trading.
This promotion runs from now to 16 September and with no minimum trading requirement to enjoy the promotional commission rates. You can learn more about this promotion at Phillip Futures, and open your Phillip Futures account by 30 August for a S$100 reward.