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Understanding E Micro Contracts

02/14/2014 10:36 am EST


Carley Garner

Senior Strategist & Broker, DeCarley Trading, LLC

These contracts, says futures trader Carly Garner, are an excellent vehicle for the smaller trader as the margin is much lower, which allows traders to stay with positions longer.

SPEAKER 1:  My guest today is Carly Garner.  We’re talking about E-micro contracts and how they’ve been for traders, so, Carly, talk about them.  What are these E-micro contracts?

CARLY GARNER:  E-micros are a great product that the CME rolled out and they really came about to kind of complete with the Forex type of things.  You know Forex was offering very small trading products for small traders.  This was the CME’s answer to that.  In my opinion, it’s absolutely fabulous because what it does is particularly, there’s an E-micro Gold Futures that really gives even the small trader the ability to get into gold.  Gold is a treacherous market.  Anybody trading the full-sized futures contracts, the margin is high.  It moves fast.  There is really a lot of money at stake so it’s hard for retail traders to get involved in that market other than, I mean, they can look at ETFs but quite frankly, the ETF just isn’t nearly as efficient as the futures market.  The E-micro Gold gives them a way to get into the markets.  You can dollar cost average and you can position trade instead of day trading because there’s too much risk to hold overnight.  With an E-micro, you can throw it on for a long-term trade.

SPEAKER 1:  How much does it take?  What is one contract worth?

CARLY GARNER:  The margin right now on a contract is about $880, so it’s less than $1000.  Each dollar that gold moves, an E-micro futures’ trader makes or loses $10.  Gold has its big days and then it has its times where it goes nowhere.  On average, I would say, somewhere between $8 to $10 a day in gold.  As an E-micro futures’ trader, you’re making or losing $80 to $100 a day per contract.  I think everyone would agree that’s pretty reasonable.  The great things is if you’re wrong, we don’t know if gold is going to, well, theoretically if it is bottoming out, maybe it will bottom out at 1250.  Maybe it will be 1200.  Maybe it will be 1100.  As an E-micro trader, you can dollar cost average your way in and even if the market goes to 1100 and you started buying at 1250, your loss, it is money.  It is $1500 but it’s probably not going to blow out your account so you can maybe be comfortable adding on and hoping that gold recovers, which I think it would.  I’d be a buyer down there. 

SPEAKER 1:  Let’s talk about the chart that you use to do the technical analysis.  Are you doing it on the chart of the E-micro or just on gold in general? 

CARLY GARNER:  That’s a good point.  No.  The E-micro contracts, they have currencies as well but for both gold and currencies, they’re still on the thin side.  Liquidity is a little bit of a problem but you want to keep in mind, they’re based on a full-sized contract.  Liquidity isn’t the end of the world in that particular instance because the E-micro follows the full-sized.  It’s not like it’s such an illiquid market you’re not going to be able to get in and out at a fair prices.  There’re market makers that follow the actual gold and there are arbitrators that are keeping everything in line.  Liquidity really isn’t as big of a deal as you might think but with that said, you want to keep in mind that that potentially could be an issue. 

SPEAKER 1:  Time wise, can I trade these 24/7 or they’re the same as regular futures market?

CARLY GARNER:  Regular futures market, 24 hours a day.

SPEAKER 1:  Carly, thanks for your time.

CARLY GARNER:  No problem, it was a pleasure.

SPEAKER 1:  You’ve been watching the Video Network. 

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