How to Properly Trade Mini Futures Contracts | Closing the Gap: Futures Edition

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How to Properly Trade Mini Futures Contracts | Closing the Gap: Futures Edition

alright ready I’m ready what are we discussing today so we’re gonna talk about the mini future contract market or you could call it the little future market and really what it is is like the little horses we often say the future contract markets it’s a big market and a lot of the contracts are very big and especially from a notional value they aspra express very large sizes uh-huh we can trade these on a smaller size and especially like for retail traders or people who are just getting started and they don’t want to have that type of exposure you can trade these smaller contracts and you get the same price in Delta efficiency that you get with the larger contracts so we’re just gonna have a conversation about how we can trade these and then also how we can reduce costs basis by using the options on the bigger contracts against the little contracts so the the reason that people don’t use these generally speaking because let’s be fair about both sides the market the reason people don’t use them is number one because they don’t have the same depth of liquidity that’s true they’re fine I understand for small trades but generally speaking they trade a fraction of what the big contracts do that’s right okay and then second thing is I don’t think you get a reduction in your fees do you you don’t get a reduction in the fees but you get a reduction in margin okay and a large reduction in margin sure we should and yeah you definitely should have less risk less margin but the fees are the same right yeah so it becomes more expensive on a notional basis right and if you’re trading these professionally it becomes expensive also so you see less professionals in there because you’re paying the same type of exchange fees got it okay so an advantage of the futures derivatives market is that it often provides an excellent Delta efficient efficiency so low transaction costs overnight access to highly liquid electronic markets retail traders also benefit from span style marketing this provides a high level of leverage span margin essentially is is kind of next-generation risk based margin so I it’s the best of all the margining platforms when you look at it so that’s that is an advantage of ferrous – it’s a well I think so yeah and again and the other the other nice thing about features is the firms that you trade with have the ability to set intraday margins the only thing that the exchanges to is set overnight margins right which is another advantage the problem with futures is that most people don’t not at rate them in the sense that they don’t know how to be there to product-specific and their two directional specific and the other problem with futures is a lot of these futures firms is that the big brokerage firms don’t support futures in most cases and the small firms don’t have enough money to support the big traders mm-hm so sounds like a catch-22 I don’t think that’s the problem so downsizing the future so let’s just say hey you know what you want to get started where do I start here’s where you start so new future new traders however may find the size of the contracts intimidating and they provide too much risk for especially for a new account or small account so today we’re gonna discuss the use of mini size futures contracts off in half or sometimes a tenth the size examine normal-sized futures yep and and like when we were talking earlier I so let’s just first look at some of I pulled up three example of lookit you know main futures that we often trade gold euro crude oil and we can see we can see there the tickers and current current quotes notional amounts so we’re looking we’re looking at some big notional numbers that are twenty hundred thirty nine and fifty nine thousand exactly and we’re talking just a one lot so you’re controlling that much money with a one in notional value and so your tick values come down to ten dollars 1250 ten dollars and you’re looking at about four thousand and so I might change for your margin on each one of those what’s pretty consistent about futures is they tend to stay somewhere between let’s say twelve to women like crew dolls probably the the the tightest as far as margins cause about twelve to one but you know when you’re talkin euros you’re almost euro sir what are your most thirty to one or twenty five leverage time and and gold whatever what is that 25 to one right and and as you see volatility change all you’ll see your margin course and a contract with that we would call it a big product right we always said so and so here are the underlying mini-sized contracts it right and they’re not side by side but you can see the twelve hundred dollars three hundred sixty eight dollars and twenty three hundred dollars right and then you can see also the size exactly and and what’s really nice is when you’re trading these you know just from your own account or whatever all of a sudden you’re moving from a twelve dollar and fifty cent tick on the e micro to a dollar twenty-five per tick you know so it’s much more manageable from a smaller size account you know you decide you’re just it’s

less firing power and I think you know good introductory way to also take a look at futures as long as that they’re liquid in the markets are tight in every like that exactly if you can handle the risk or if you like the risk or you just get a feel for how the market trade so you know you’re gonna throw a one lot on in gold I would say stay away from the big contract throw something on yg yg trades if you look at it initially you’ll say well this thing doesn’t trade it trades you know twelve hundred contracts a day but actually because there’s this direct arbitrage between the big contract my G there’s an electronic market that’s always making a market around just one took what it’s one tick wide yeah but the problem again is is knowing what you have it adheres the prefix knowing what the prefixes like what drives me crazy is one half was it’s a 1/4 third for the one third for the for one tenth and 1/2 so each contract size is different each contract size is different so it and it’s actually there’s many different mini and micro products out there so finding the right ones to trade is also an issue and it’s kind of this cloudy market of it’s actually very hard to find the information on what what’s worth trading what isn’t I was a huge supporter of these mini products remember we come from an era when the products that we were use trading were five times this size right so it’s really scary but especially with EES but when you start looking at these mini products we were huge endorsers of we loved the idea of going to a mini product for individual investors but the hard part is time time this is really hard with the different multipliers and not and each size being different it makes it very hard to just be an quote a domain expert really hard right so here’s the downsizing to the mic micro mini contracts and we’re talking about the biomes obviously being smaller but yeah um but well there you go twenty-five thousand a this is yesterday okay yep and I wrote in there you know below a thousand contracts you’re really looking at sometimes these things get very not traded some some micro in many contracts are just not traded and if you see something that’s trading with sixty eight contracts on the day your you probably don’t have the liquidity to get in and out and it’s probably not getting quoted all these that I have listed here are quoted you can trade them you’re gonna be able to get out even during periods of volatility I and I’ve traded a qm is the mini crude oil I’ve traded that during heavy volatility there still is going to be a market there for you and in same thing with YG and the micro euro is actually it’s it’s very actually liquid for a micro contract when I took a delivery of silver back in the day I did it on using the mini contract to the board straight check delivery yeah the mini contracts do not have liquid options available for trade however we gain option exposure to these products through the use of options on the larger product so are you saying that they’re fungible yes they’re because you can you can look at them from a delta perspective so I’m a delta perspective there but are they actually fungible do they want does one turn into the other the blend does not turn into the other okay that’s a problem right you have a mathematical relationship between the mini and the large and the large and the option are fungible so in a sense you have this sort of three-way relationship as a basic option on future strategy will often look at some some type of cost basis reduction the nice thing here is you can be delta-neutral easy and you get small right small I think is really the key you can get song exactly so with regard to implied volatility rank the euro represents the next opportunity for cost basis of reduction trade and all you’re saying here is that the implied volatility based on the implied volatility rank suggest that the euros richest of all three riches so if you know maybe if we’re gonna make a trade and the nice thing about you know futures on options really you can think of it as trading in equity also so you know we’re if we’re gonna get long something we could look for some kind of cost basis to reduction sell a call self call spread reduce your cost basis give you some more room on the downside especially if you’re just making a directional but which is generally what you’re doing in the futures market totally agree totally agree okay so what we have here this is so you’re on the my sister now we’re just kind of we’re just gonna compare the two yeah so you got the micro so you can see it’s one-tenth the size as the large across the board across the board yeah how would you know it’s one-tenth the size you’d have to look at the the specs or you could you know you really I you can look at what’s the tick value that’s how you can tell you know I’m gonna make it 1250 a tick or I’m making a buck 25 tick it should say though like I guess it’ll be a hard

coding thing right I mean I don’t know I mean I guess you could do anything sure of course of course along he might grow a long email euro future represents a delta of 12,500 meeting for $1 moving the price of a /m 6e would represent a profit loss of 12,000 five dollars the large contract would have a delta 100 troike so those are big numbers let’s yeah and that’s 110 the euro the yeah a dollar move it never happens so we just kind of break it down to let’s just look at what a one standard deviation move is based on these your option chain so currently the Euro option market is pricing in a plus or minus point zero two for expected move the next 14 days this is a 240 tick move in there’s two weeks for profit loss this amounts to three hundred dollars on one contract or three thousand dollars on one of the big ones exactly yeah that’s good so that’s a reasonable for a lot of people that’s the plenty of risk yes yes if it’s a lot of different accounts for sure right all right so what do we have here B all right we’ve got a potential trade here okay and you could be bullish bearish I went bullish on the on this trade so if you’re bearish you can you know do the opposite but so we just wanted to set up some kind of in trade where we would have no real numerous to the upside but have a cost basis reduction so we sold a call spread in the big 60 contract and so in the euro we sold a call spread and we bought you got along 3 micro futures so this gives you a total margin of 1400 about $1,500 and if we go to the next page we can look at the so here’s what our delta position looks like so we see by adding that call spread to the entire equation of just being long we’ve reduced our deltas by 8,000 deltas and in comparison to just being long a big contract we’re looking at about 30,000 deltas compared to 125,000 Delta’s so what you’re doing is you’re calling notional dollars Delta’s no actually we’re pulling up this is actually like the the deltas for a dollar move in the underlying right I think it’s the same thing good ok it would be notional dollar yeah I would be no should be the same thing they’re exact same thing exactly ok so so here you’re buying you’re selling one call spread in the big future against three contracts in this mini future exactly okay and this mini future is 10 to 1 the mini futures 10 to 1 right so through say an Adam I call spread that probably has around a 30 Delta or something like that and you’re buying 3 e-mini contracts I have around a 30 Delta for argument’s sake so that was we’re buying that the three minis that have they have a delta of hundred to the cut I got it you know what about a hundred thirty exactly that’s exactly what we’re doing so we’re basically taking one third the big contract and then matching up the Delta to the bigger yeah you’re funding the two together exactly I’m stood all right now what do we have here I’m trying to set there’s a lot of there’s a lot here yes so what we’re looking at here just a straight line the yellow line is where we put the trade on so that’s you know zero ticks move that’s our position there are final P&L we’re gonna make money on the call spread so we make $250 that’s how much the call spread that’s how much we made from the call spread if we get no movement the beauty behind this trade is we could lose 50 ticks now we could be long 3 micro contracts lose 50 ticks so we’re wrong on direction and we made $62 on the trade and that’s what I really like about the upside to see what you just selling premium yeseong premium so the premium is really helping right because on my premium it’s almost like doing a that’s py SPX bread if I can bring it back in it’s a great way to compare it yeah because we’re collecting 2660 call spread the max profits $250 in that position this gives us 215 of protection against on our three long micro features this is equivalent this is 67 ticks of downside protection oh boy I get it all I used to be really hard can I give an example sure let’s do example yeah let’s do I think it’s to be hard Lewis let’s I think it’s gonna be easy once we put it on okay so what I’m gonna do right here is I’m gonna go to the forward slash six eat right and you know look at the options yeah that’s the regular option soon yeah and I’m gonna look at the June options which have oh they have 14 days and the reason why we’re doing 14 days the one one caveat with the micro is we’re only you’re only

gonna really get volume in the front month so that’s the active month I wouldn’t be trading the July contracts in the micro yet so and you because you talked about how the the the tics are gonna be one wide because of the are possibilities that are there when you go to the back month like September you don’t have the volume in the big product to support the small exactly so the small products gonna be even wider exactly you really need to have that depth in the front product before them for the smaller product to have it also so this time it’s a shorter term trade right this time it is and this is the type of trade that you could repeat you know going forward so what would be the ad the money here I would say if you’re looking at the June with 14 days to go the at the money would be the 1.1 yep all right appeal on sway at 105 I can get I can’t get on that screen here you can see right there ours a one point one or one point 105 I would say it’s either 11.10 5.10 5 ok just like any anything else even in an equity you look at the options that are trading for around the same price and that would be the at the money so it’s right in the middle but one point 105 would be the close right okay we’re selling a call spread a little further out well I’m gonna do a little bit different cause it doesn’t make it so I’m gonna sell this straddle well hold on cuz it’s the same thing so it’s not the same then you’d have to buy 5 futures you’d have to buy 5 minutes who’s gonna have 50 deltas to sell the straddle and then by the buyer then this straddle is okay hold on let me think about this for a sec what do I want to do here what’s the I be ranked 80 euro it’s big coats big yes high for six months I go to folks right all the system let’s just write so one 105 it’s 80 it’s 81 percent IV rank okay in the Euro but it’s been that way for six months I mean okay so let’s come back to the vertical spread so the vertical spreads training for 23 ticks the nearest side of the money vertical spread mm-hmm we’re not going exactly near southern way we’re going and think we’re going Anthony no we’re going a couple of to the 112 112 and a half yeah remember it’s a big contract yes so this is your this is the big contract then we’re gonna trade a few micros against it okay so what 112 112 and a half yep I think think a little bit smaller it’s only stores 13 techs correct right only but you’re only you’re only buying a third of ural yeah I know okay so there’s little Texas so if you wanted to make it big you’d be selling something for argument’s sake at 45 and buying one euro that would that would be more like a covered call kind of strategy that’s that’s exactly what I’m gonna do so what you want to do is just because I want to make this so everybody can understand this too hard to understand so I’m gonna sell the the one point 105 which I which is the nearest out of the money call mm-hmm and if I sell that call that’s gonna have a 50 bill 50 Delta goodbye five euro move it on your hedge okay all right so you just sold the call yes and now that under hedge by buying the Euro itself okay which is the symbol for the mini euro folk / 6 e m6 4 / m6 e MV okay /m 60 well it’s traded 16,000 contracts already it’s pretty liquid for so instead of doing it so I’m gonna do it it’s down today yeah so I’ll be a 46 bid you got him okay perfect now that I did is that should be delta-neutral yes so you bought five when you buy three three three by one you under hedge its what do you want oh you sell and your hedge stuff in there yes okay perfect but that should be delta-neutral okay let’s try that what’s up everybody thank you for watching our video you want to check out some more of our segments you should definitely subscribe to our channel which you can do right beside case as well as watch some more videos or you can check out next to